What to do with money from grandparents

[freshsqueezed]

My parents have been updating their wills. This has triggered some other things like to whom they will leave what. Anyway, they want to leave money to 2 of my kids but set it up now so even though it’s not that much now, it will be a bit more by time they would pass.

Ok before I keep going on let’s get to the point. Would it be a bad idea for them to give us the money and open a Roth IRA for each one But in my husbands name? Reason for this is I’m not sure I want to continue investing in a 529. Id like something more flexible. My husband will be 59.5 by time oldest is finishing college. I figure if any money is needed before college that’s an allowed early withdraw. If it isn’t needed once he turns the min age he can start gifting and they can open their own accounts with it.

Just want to make sure I’m not missing any points to be considered before doing this so I’d appreciate the feedback. Also he will not need to contribute to our own Roth IRA this year so no worries about limits

[goldengirlz]

There are contribution limits for Roth IRAs so if your H is already maxing his out, or the amount we’re talking about exceeds contribution limits, he won’t be eligible to fund additional IRAs.

I’m also curious about why you’d put it in his name if it’s your parents’ money.

[flygirl]

I’m not saying it will happen, but what if you get divorced and the money is in your Hs name? I’d talk to a financial advisor and see what the6 recommend, I’m not sure why you think a 529 isn’t flexible. If your child doesn’t go to college, you can take the money out and pay taxes on the gains.

[livinitup]

My best friend has a joint savings account with her mother's name and her name. Her mother funds it. It accrues interest and my friend has permission to withdraw funds to make investments (like a CD). The purpose for the account it to build long-term saving for her daughter, the granddaughter. It will probably be used for college expenses, but if not, they like the flexibility of paying for anything she may need as an adult. 

[freshsqueezed]

May 21, 2020 13:53:05 GMT -5 flygirl said:

I’m not saying it will happen, but what if you get divorced and the money is in your Hs name? I’d talk to a financial advisor and see what the6 recommend, I’m not sure why you think a 529 isn’t flexible. If your child doesn’t go to college, you can take the money out and pay taxes on the gains.

Yes this is the one risk that gives me pause. However, in order for that to be an issue it would be more than just divorce. He would have to become an absolute horrific person who steals from his children. So I’m guessing if that occurs we will have bigger problems than he stole all the money in these 2 accounts. You know what I mean? But yes, it’s in my mind too.

[ribollita]

Why not put it in your name?

[dragon's breath]

"Open a Roth IRA for each one"...
Not sure what you mean by this. Your husband can only have multiple Roth IRAs if he is not maxing any of them (so if he maxes his own, then he cannot put money into to more accounts).

Open one in their name with your husband's name as the custodial adult until they are 18? They need earned income to have their own Roth. If they don't have earned income, nothing can be contributed to their accounts. And, why have your husband be the custodial adult and not you?

Do you have a Roth IRA? You could open your own as a non-working spouse, and are able to contribute while your husband has earned income if you do not (not sure of all the rules on this). Then you could open two Roth IRAs yourself and put half that max in each for each child (not sure if spouse plans have the same limit, but if they do, it could be $3k into each).  If you work, you can contribute up to your earned income amount, but then not sure why you would have started with ideas to put it in your husband's account.  Maybe he is just much older and the withdrawals could start sooner?

[k3am]

freshsqueezed, the world is littered with people who thought that their spouse was a good person and found out too late that everyone has the capacity to do some really shitty stuff.

[freshsqueezed]

May 21, 2020 15:14:17 GMT -5 k3am said:

freshsqueezed, the world is littered with people who thought that their spouse was a good person and found out too late that everyone has the capacity to do some really shitty stuff.

That’s not what I was saying. My point was divorce wouldn’t so much be the concern as much as him just ending up a shit person in which case there’d be bigger problems than just these accounts.

[freshsqueezed]

May 21, 2020 15:12:49 GMT -5 dragon's breath said:

"Open a Roth IRA for each one"...
Not sure what you mean by this. Your husband can only have multiple Roth IRAs if he is not maxing any of them (so if he maxes his own, then he cannot put money into to more accounts).

Open one in their name with your husband's name as the custodial adult until they are 18? They need earned income to have their own Roth. If they don't have earned income, nothing can be contributed to their accounts. And, why have your husband be the custodial adult and not you?

Do you have a Roth IRA? You could open your own as a non-working spouse, and are able to contribute while your husband has earned income if you do not (not sure of all the rules on this). Then you could open two Roth IRAs yourself and put half that max in each for each child (not sure if spouse plans have the same limit, but if they do, it could be $3k into each).  If you work, you can contribute up to your earned income amount, but then not sure why you would have started with ideas to put it in your husband's account.  Maybe he is just much older and the withdrawals could start sooner?

Last line - he can start withdraws sooner.

Thanks for the comments everyone. It looks like the only issue is considering the becoming a shit person. I’d thought about that and will continue. I’m more crowd sourcing implications on tax, financial aid etc I may not have thought of but seems I’ve covered my bases. Thanks everyone!

[k3am]

May 21, 2020 15:37:59 GMT -5 freshsqueezed said:

May 21, 2020 15:14:17 GMT -5 k3am said:

I wouldn't avoid looking at those repercussions on these accounts just because there would be bigger problems. 

[wanderingback]

May 21, 2020 15:17:59 GMT -5 mofongo said:

Why your H’s name?

Reading the post I think it's because her H is older than she is and if they need to do the early withdraw for whatever reason he could do it at 59.5 and she'll still be younger. 

[mich1]

May 21, 2020 16:33:37 GMT -5 wanderingback said:

May 21, 2020 15:17:59 GMT -5 mofongo said:

Why your H’s name?

Reading the post I think it's because her H is older than she is and if they need to do the early withdraw for whatever reason he could do it at 59.5 and she'll still be younger. 

But you can remove money anytime from a Roth.  You just cannot remove the earnings from it.

[wanderingback]

May 21, 2020 22:19:52 GMT -5 mich1 said:

May 21, 2020 16:33:37 GMT -5 wanderingback said:

Reading the post I think it's because her H is older than she is and if they need to do the early withdraw for whatever reason he could do it at 59.5 and she'll still be younger. 

But you can remove money anytime from a Roth.  You just cannot remove the earnings from it.

Oh ok. I thought 59.5 was when it became penalty free or something like that. But I’m certainly no MM expert although I’ve been on this board since 2006, damn.

[wanderingback]

May 21, 2020 21:12:04 GMT -5 mofongo said:

May 21, 2020 16:33:37 GMT -5 wanderingback said:

Reading the post I think it's because her H is older than she is and if they need to do the early withdraw for whatever reason he could do it at 59.5 and she'll still be younger. 

I need more smart people like you in my life 😂😂 dead serious! ❤️

Well don’t get too excited, I certainly could be wrong. I appreciate the compliment though I’ve been on MM since 2006 so I hope I’ve learned something!

[puppylove64]

I would consider UTMAs for your kids. You can invest it in stocks or whatever. As long as they make less than $900/year in income, they don’t have to pay taxes. It is solely in their name. No one can take the money out until they are 18 or so. Then they can take it out for any reason. They have various rules by state, so you would need to look it up.

[goldengirlz]

May 22, 2020 3:56:11 GMT -5 puppylove64 said:

I would consider UTMAs for your kids. You can invest it in stocks or whatever. As long as they make less than $900/year in income, they don’t have to pay taxes. It is solely in their name. No one can take the money out until they are 18 or so. Then they can take it out for any reason. They have various rules by state, so you would need to look it up.

Ah, this was the one I was thinking about but couldn’t remember!

A note about taxes: earnings above $2,100 are taxed at the same rate as trusts, not the child’s tax rate. That would be a lot of money, but it depends on how much is invested.