Taxable for relative

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

Taxable for relative

Postby Ruprecht » Sat Jul 27, 2013 4:23 pm

My 30+ yrs younger brother is intermittently employed. When he is, he contributes to a Roth IRA through Vanguard - no 401k or 403b with his kind of work, unfortunately. When he's not working (and this year looks to be another), he's not able to contribute to an IRA due to the IRS rules, and also doesn't have the money to contribute to any other sort of retirement savings. He's not even paying into social security while unemployed, which bothers me for his future.

I'd like to help him build some retirement savings. While he's working, I can make it possible for him to fully fund his IRA (which is still a pitiful sum in total, but at least it's something). When he's not working, what are my options? All I can think of at the moment is to gift him enough to open a taxable account in his name and then help him fund it each year. Are there any other options? I don't anticipate him going back to school, so I assume that makes a 529 unhelpful.

If I do go with the taxable account, should I follow the usual advice about 100% stocks in taxable? He's unlikely to be paying any taxes anytime soon, but hopefully will be eventually. Even when he does, I doubt he'll be in a very high tax bracket. So on the one hand I hate using 100% stocks, but on the other hand I don't want him to deal with unforeseen tax problems later.

If he has a taxable account, can I gift money directly into it, or does he have to do that?

Thanks for any ideas, including suggestions for favorite Vanguard funds for this purpose.
User avatar
Ruprecht
 
Posts: 482
Joined: Fri Aug 17, 2007 11:34 pm
Location: a very nice cardboard box

Re: Taxable for relative

Postby tyler_cracker » Sat Jul 27, 2013 4:33 pm

i think you should not, as they say, let the tax tail wag the portfolio dog. obviously it is desirable to max out tax-advantaged space as much as possible, but you always work with what you've got. come up with a reasonable asset allocation based on your brother's risk tolerance and investment horizon, then figure out how to implement that as tax-efficiently as possible (don't forget I Bonds and municipal bonds). some TBM in a brokerage account isn't going to break the bank, especially in a low tax bracket.

gl!
User avatar
tyler_cracker
 
Posts: 262
Joined: Sat Dec 03, 2011 3:50 pm
Location: sending out the kicking team

Re: Taxable for relative

Postby LAlearning » Sat Jul 27, 2013 4:38 pm

Ruprecht wrote:My 30+ yrs younger brother is intermittently employed. When he is, he contributes to a Roth IRA through Vanguard - no 401k or 403b with his kind of work, unfortunately. When he's not working (and this year looks to be another), he's not able to contribute to an IRA due to the IRS rules, and also doesn't have the money to contribute to any other sort of retirement savings. He's not even paying into social security while unemployed, which bothers me for his future.
--Off topic, but don't worry about SS in the future....its irrelevant for the planning now anyways.

I'd like to help him build some retirement savings. While he's working, I can make it possible for him to fully fund his IRA (which is still a pitiful sum in total, but at least it's something). When he's not working, what are my options? All I can think of at the moment is to gift him enough to open a taxable account in his name and then help him fund it each year. Are there any other options? I don't anticipate him going back to school, so I assume that makes a 529 unhelpful.
--You can gift up to 14k per year. Does he need retirement help or (more likely) a very large EF to save him from years of unemployment?Obviously you can mix these two.

If I do go with the taxable account, should I follow the usual advice about 100% stocks in taxable? He's unlikely to be paying any taxes anytime soon, but hopefully will be eventually. Even when he does, I doubt he'll be in a very high tax bracket. So on the one hand I hate using 100% stocks, but on the other hand I don't want him to deal with unforeseen tax problems later.
--I would be very conservative at first until he builds up some sort of next egg. MMF, IBonds, CDs. Then short term bond funds with a sprinkle of TSM or TISM.
--The LTCG tax in the 10, 15% bracket is zero.....so stocks are very useful in this sense. And I doubt the divdends being thrown off by CDs, etc would account for much tax.


If he has a taxable account, can I gift money directly into it, or does he have to do that?
--Cut him a check. Unless you fear he's using the money for other purposes.........

Thanks for any ideas, including suggestions for favorite Vanguard funds for this purpose.
I know nothing!
User avatar
LAlearning
 
Posts: 621
Joined: Wed May 09, 2012 1:26 pm
Location: Los Angeles

Re: Taxable for relative

Postby Ruprecht » Mon Jul 29, 2013 10:38 am

Thanks for the responses. If anyone else has ideas, I'd love to hear those also.

Some answers to LAlearning, and a couple new questions:

I'm basically a living emergency fund, so that's currently "taken care of". I'd just like to help him build long-term savings that will be separate from me. Also, I'm in a high tax bracket, and it occurs to me that since I've already decided to be 100% committed to helping him long-term, my contributions would be maximized if I start contributing to his savings now. In other words, if I save money now under my name with plans to give it to him later, it will be taxed all along the way at my high tax rate. If I help him start building his own savings now, the high tax rate only applies once, when I earn it. After that, the taxation is all his, which will be low. Am I thinking about this correctly?

Not worried about his use of the money. So cutting a check is fine. I was just wondering if I could choose to gift directly into his account just because I wanted to do it that way. Anybody know if it can be done that way?

So I guess my two options for taxable would be to open a Vanguard Brokerage account to allow CDs and other things to be part of the AA. Or just buy mutual funds without a brokerage account? So far my only investing is through my 403b,401a,457b,IRA, so I'm still a noob when it comes to taxable investing. What are the advantages/disadvantages of the brokerage account compared to just buying funds outright? Is the brokerage account costly or a pain to manage?

And finally, I can't think of any other way to do this than some sort of taxable investing plan as discussed above. Am I missing some other option?
User avatar
Ruprecht
 
Posts: 482
Joined: Fri Aug 17, 2007 11:34 pm
Location: a very nice cardboard box


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: anil686, Dale_G, eschaef, Flobes, House Blend, jbran99, swamy and 62 guests