Set up ROTH's for adult kids without them knowing

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JMK909er
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Set up ROTH's for adult kids without them knowing

Post by JMK909er »

I have 3 kids that are all young adults (Over 18) and I would like to set up ROTH accounts for each of them without them knowing so that they will find out about it in their retired years or when I die. (That way they won't tap into it!)
What is the best way to do that?
Should I make 3 new ROTH accounts for myself and make them the beneficiaries? Can I make them co-owners?

Is this a good way to do it? Are there any pitfalls to this? Is there another way I should approach this.
-JMK
Savermom
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Re: Set up ROTH's for adult kids without them knowing

Post by Savermom »

I would not do this. What if they start them on their own? There are limits to how much they can contribute.

As far as I know, it has to be their name on the account.

I would just gift them the money for the account.
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gwe67
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Re: Set up ROTH's for adult kids without them knowing

Post by gwe67 »

Bad idea.

Must be reported on their tax returns.

Do they have enough earned income?

They may open accounts and over-contribute.

Probably illegal for you to open accounts in their names (forgery).

Boundary violation.

Individual accounts cannot be jointly held.

You can open as many accounts as you want, but there is a total contribution limit based on YOUR age.

It's Roth, not ROTH.
Last edited by gwe67 on Sat Jul 31, 2021 2:23 pm, edited 1 time in total.
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JMK909er
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Re: Set up ROTH's for adult kids without them knowing

Post by JMK909er »

OK, how can I set up investment for them for later in life? I don't want them to touch it for many years.
-JMK
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Re: Set up ROTH's for adult kids without them knowing

Post by ionball »

JMK909er wrote: Sat Jul 31, 2021 2:15 pm Can I make them co-owners?
No. The "I" in IRA is "individual".
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Re: Set up ROTH's for adult kids without them knowing

Post by Flashes1 »

Blind trusts.
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Re: Set up ROTH's for adult kids without them knowing

Post by dbr »

JMK909er wrote: Sat Jul 31, 2021 2:23 pm OK, how can I set up investment for them for later in life? I don't want them to touch it for many years.
See an estate attorney regarding trusts and wills. Do not DIY this.
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Re: Set up ROTH's for adult kids without them knowing

Post by JMK909er »

I don't know anything about blind trusts. Can anyone tell me more about this?
-JMK
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Re: Set up ROTH's for adult kids without them knowing

Post by JayDee37 »

First, the contribution limit for all your IRAs (Roth or otherwise) is a collective $7k (assuming you are over 50 and using catch-up contributions). That's not a lot to spread between your own IRA and any additional IRAs that you set up with your kids as beneficiaries. I don't think it would be legal to set up any IRAs in the kids' names without their knowledge.

Second, if you are that worried about your kids misappropriating funds that you are gifting to them, it may be more useful to start having honest conversations with them about personal finances, strategies for financial well-being, and your hopes for their futures. Just leave them money in your trust/will if you think they can't be responsible with it in the meantime.

Finally, I am generally not in favor of anything smacking of subterfuge/financial secrecy between spouses or between parents and children. Not that parents and children need to know all of each others' business, people have a right to privacy about their own financial affairs. But when you are attempting to impact the financial affairs of others (kids in this case), it's best to be open with them.
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Re: Set up ROTH's for adult kids without them knowing

Post by dbr »

JMK909er wrote: Sat Jul 31, 2021 2:29 pm I don't know anything about blind trusts. Can anyone tell me more about this?
Not blind trusts per se but this book may be helpful, or not: https://www.amazon.com/Beyond-Grave-Rev ... =4&depth=1
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Re: Set up ROTH's for adult kids without them knowing

Post by mpsz »

I agree that a Roth is a no-go because of the reasons identified above.

Consider just giving them some of the money directly, right now. Start small and see how it goes. Give guidance on what you'd like to see them do with the money. "Start a Roth IRA and put this in VTSAX", "put this towards your down payment"... and so on. If they are appreciative and responsible, consider giving more in the future. If they blow it on something dumb, then reconsider.

I agree 100% with the "honest conversations" comment above, which is partly why I am suggesting this. "That way they won't tap into it" - they may or may not. If you are really worried that they will act irresponsibly, this is a critical teachable moment that will leave your kids better off.

Paying off student loans or assisting with a down payment may have a more meaningful impact to the recipient's life than contributing to a retirement 40+ years from now, that may be fully-funded anyway.

I know this isn't directly what you asked but just wanted to offer another viewpoint.
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Re: Set up ROTH's for adult kids without them knowing

Post by Lee_WSP »

JMK909er wrote: Sat Jul 31, 2021 2:29 pm I don't know anything about blind trusts. Can anyone tell me more about this?
You'll need the help of a lawyer, but you'd setup an irrevocable trust with yourself as trustee. That's the broad stroke anyway.
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Re: Set up ROTH's for adult kids without them knowing

Post by Tink221 »

When my sons start getting jobs I plan on walking them through setting up a Roth IRA and matching some of their contributions. This way they have skin in the game and learn to take advantage of a match and compound interest. I plan on showing them this chart and then If they hit the 6k max I'd tell them about employer plans. Any interest in that method?

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Re: Set up ROTH's for adult kids without them knowing

Post by increment »

In order to open an IRA, your investment company will need to collect information from the owner and to obtain agreement to a bunch of legal verbiage. How can that happen without the owners knowing?
Last edited by increment on Sat Jul 31, 2021 3:32 pm, edited 1 time in total.
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Re: Set up ROTH's for adult kids without them knowing

Post by RickBoglehead »

JMK909er wrote: Sat Jul 31, 2021 2:23 pm OK, how can I set up investment for them for later in life? I don't want them to touch it for many years.
Think about what your thinking of doing. You're trying to control their behavior as adults because you don't trust them to control their own behavior?

As stated, IRAs are not an option. See an attorney with expertise in blind trusts.
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Re: Set up ROTH's for adult kids without them knowing

Post by Statistical »

JayDee37 wrote: Sat Jul 31, 2021 2:31 pm First, the contribution limit for all your IRAs (Roth or otherwise) is a collective $7k (assuming you are over 50 and using catch-up contributions). That's not a lot to spread between your own IRA and any additional IRAs that you set up with your kids as beneficiaries. I don't think it would be legal to set up any IRAs in the kids' names without their knowledge.

Second, if you are that worried about your kids misappropriating funds that you are gifting to them, it may be more useful to start having honest conversations with them about personal finances, strategies for financial well-being, and your hopes for their futures. Just leave them money in your trust/will if you think they can't be responsible with it in the meantime.

Finally, I am generally not in favor of anything smacking of subterfuge/financial secrecy between spouses or between parents and children. Not that parents and children need to know all of each others' business, people have a right to privacy about their own financial affairs. But when you are attempting to impact the financial affairs of others (kids in this case), it's best to be open with them.
It it is actually the opposite. The limit is $6K per participant (the person whose name is on the account) per year. You can't contribute your $6K to anyone but yourself. The kids have their own $6K but it is their own $6K legally the OP can't even contribute it for them. The OP could gift $6K to them and they contribute it but contributing to someone else's IRA without their knowledge and permission is illegal. Worse if the kids didn't know and contributed their own $6K it would lead to unlawful overcontribution issues and tax audits.

So all around the OP idea is horrific on multiple levels. Likely the stuff of CPA nightmares.
Last edited by Statistical on Sat Jul 31, 2021 5:31 pm, edited 1 time in total.
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Re: Set up ROTH's for adult kids without them knowing

Post by JayDee37 »

Statistical wrote: Sat Jul 31, 2021 3:38 pm It it is actually the opposite. The limit is $6K PER PARTICIPANT. You can't contribute your $6K to anyone but yourself. The kids have their own $6K but it is their own $6K legally the OP can't even contribute it for them. They could gift it to them and they contribute it but contributing to someone else's IRA against their express permission is 100% illegal. Worse if the kids didn't know and contributed their own $6K it would lead to unlawful overcontribution issues and tax audits.

So all around the OP idea is horrific on multiple levels. Likely the stuff of CPA nightmares.
I know the limit is per participant. I was responding to the OP's idea of setting up 3 additional Roth IRAs in OP's own name, with a different child as beneficiary for each of those three. While it may be technically legal to take this approach (I don't know whether it is or not), it would require spreading the max annual contribution pretty thin. Also, if you want something approximating that approach, why not just make each child 33% beneficiary of a single existing Roth IRA in OP's name?

I concur that the idea of establishing Roth IRAs in the kids' names without their knowledge is a terrible idea and probably not legal, as I also mentioned in my initial response.
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Re: Set up ROTH's for adult kids without them knowing

Post by KlangFool »

JMK909er wrote: Sat Jul 31, 2021 2:15 pm I have 3 kids that are all young adults (Over 18) and I would like to set up ROTH accounts for each of them without them knowing so that they will find out about it in their retired years or when I die. (That way they won't tap into it!)
JMK909er,

1) Why do you think that is a good idea?

2) What if they could not survive until retirement age?

3) Why do you think they know how to manage this money when they retired?

4) Won't it be better if you give away some of the money while you are alive?

A) They get the experience of managing a small amount of money of their own.

B) You get to know how they manage their own money before you die.

C) Then, you can adjust your inheritance plan accordingly.

5) My kids were given a few hundreds every year since they were born. They had saved and invested 20K to 30K of their money when they graduated college.

6) 50% of lottery winners go bankrupt 10 years after they won the lottery.

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Re: Set up ROTH's for adult kids without them knowing

Post by 123 »

You can simply establish 3 Roth IRA accounts for yourself (in your name and based on your earnings) and name each adult kid as a beneficiary.

If you have an existing Roth IRA account you can do trustee-to-trustee transfers to fund the new accounts.

If you don't have an existing Roth IRA account you can convert existing Traditional IRA money to Roth IRA money (have to pay tax) to fund the new accounts.

If you don't have any existing Roth or Traditional IRA accounts you could start funding one if you have qualifying earnings.

Once funds are in the accounts you can invest them.

As long as the accounts are in your name and the adult child is established only as a beneficiary it is of no tax consequence to them and they have no access to the funds until they claim it as a beneficiary.

You should make arrangements that they are made aware of the accounts at the time of your passing.
Last edited by 123 on Sat Jul 31, 2021 4:09 pm, edited 1 time in total.
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Re: Set up ROTH's for adult kids without them knowing

Post by gwe67 »

[/quote]

KlangFool
[/quote]

Klang,
Off-topic and I'm sure you have discussed it before, but I'm curious, why such a large position in Wellington?
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Re: Set up ROTH's for adult kids without them knowing

Post by KlangFool »

gwe67 wrote: Sat Jul 31, 2021 4:08 pm
KlangFool
[/quote]

Klang,
Off-topic and I'm sure you have discussed it before, but I'm curious, why such a large position in Wellington?
[/quote]

It is a hedge against passive index. I do not trust passive indexing approach 100%.

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Re: Set up ROTH's for adult kids without them knowing

Post by BigJohn »

Here’s what I do. I helped them open their Roth accounts years ago. Every year they know their gift from me is the maximum contribution to their account. After I verify their eligibility, they log on and make the contribution with a “send check” option. I take the form, write the check and mail it in. They all know there is only one condition to the gift… that they not withdraw from the account without an emergency reason. Before I make the gift each year, I look over their shoulder to check the account balance. Some might find that heavy handed but they know me well and it’s become a source of laughter and fun when we do it. I enjoying give to them now and they are all very grateful for the extra retirement security.
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Re: Set up ROTH's for adult kids without them knowing

Post by dbr »

Our first line financial contribution to our children was making sure they got the education they needed and could use without having to go into debt for it.

How soon they might get more support as middle aged adults is something we can easily discuss.

The idea that there might be money that is already theirs but is a secret is not comprehensible to me. At one point we specified that children not get full inheritances in case of our death until they were age 30 (kept in trust). I am not sure I would do that on reconsideration, but that time went by very fast.
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Re: Set up ROTH's for adult kids without them knowing

Post by Luckywon »

Lee_WSP wrote: Sat Jul 31, 2021 2:51 pm
JMK909er wrote: Sat Jul 31, 2021 2:29 pm I don't know anything about blind trusts. Can anyone tell me more about this?
You'll need the help of a lawyer, but you'd setup an irrevocable trust with yourself as trustee. That's the broad stroke anyway.
Would this require the beneficiaries knowing about it?
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Re: Set up ROTH's for adult kids without them knowing

Post by delamer »

BigJohn wrote: Sat Jul 31, 2021 4:22 pm Here’s what I do. I helped them open their Roth accounts years ago. Every year they know their gift from me is the maximum contribution to their account. After I verify their eligibility, they log on and make the contribution with a “send check” option. I take the form, write the check and mail it in. They all know there is only one condition to the gift… that they not withdraw from the account without an emergency reason. Before I make the gift each year, I look over their shoulder to check the account balance. Some might find that heavy handed but they know me well and it’s become a source of laughter and fun when we do it. I enjoying give to them now and they are all very grateful for the extra retirement security.
I was going to suggest something like this.

If you really are afraid they’ll spend the Roth money unnecessarily, then make each year’s gift contingent on them not making any withdrawals in the previous year.

I did this with our kids, only informally. As in, “This money is for your retirement. If you withdraw any now, we won’t contribute any more.”
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Re: Set up ROTH's for adult kids without them knowing

Post by Lee_WSP »

Luckywon wrote: Sat Jul 31, 2021 4:29 pm
Lee_WSP wrote: Sat Jul 31, 2021 2:51 pm
JMK909er wrote: Sat Jul 31, 2021 2:29 pm I don't know anything about blind trusts. Can anyone tell me more about this?
You'll need the help of a lawyer, but you'd setup an irrevocable trust with yourself as trustee. That's the broad stroke anyway.
Would this require the beneficiaries knowing about it?
Maybe. However, I'm not entirely sure what the consequences of failing to inform them would be in the first place. But if it's setup as a pass through trust, you need to tell them so they claim the income.
Last edited by Lee_WSP on Sat Jul 31, 2021 4:37 pm, edited 2 times in total.
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Re: Set up ROTH's for adult kids without them knowing

Post by SchruteB&B »

gwe67 wrote: Sat Jul 31, 2021 2:21 pm
Must be reported on their tax returns.
A Roth IRA contribution is not reported on a tax return.

A Roth IRA differs from a traditional IRA in several ways. Contributions to a Roth IRA aren't deductible (and you don't report the contributions on your tax return)

https://www.irs.gov/taxtopics/tc451
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Re: Set up ROTH's for adult kids without them knowing

Post by 02nz »

Tink221 wrote: Sat Jul 31, 2021 3:21 pm When my sons start getting jobs I plan on walking them through setting up a Roth IRA and matching some of their contributions. This way they have skin in the game and learn to take advantage of a match and compound interest. I plan on showing them this chart and then If they hit the 6k max I'd tell them about employer plans.
If the employer plan offers a match, they should contribute enough to the plan to get the maximum match, before they contribute to a Roth IRA. Otherwise they're leaving free money on the table! See https://www.bogleheads.org/wiki/Priorit ... nvestments
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Re: Set up ROTH's for adult kids without them knowing

Post by illumination »

I think a "secret" Roth IRA opened in their names would require a certain amount of fraud.

Do your (adult) kids have the self control to "not" tap into a Roth IRA with the promise you will continue to fund (gift) them?

Seems to me that would be the easiest way, they get it funded, you decide how it's invested and show you they made no withdrawals, they get another year's contribution towards their retirement. Rinse and repeat, they give you full transparency. I guess they could cash it out some year down the road, but then they lose their annual "free" money train.

You can also set up trusts and put lots of stipulations and control. It's going to cost a decent amount in attorney fees, add more work to your tax return and it won't be as tax efficient as funding a Roth IRA. But if them "not" getting to it until some point in the far future is the main priority, that would be the better way.
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JMK909er
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Re: Set up ROTH's for adult kids without them knowing

Post by JMK909er »

Thanks for all the input. I know the money will be too tempting for them to tap into it if they can plus we live in San Diego, CA where everything is SUPER expensive. I want it to be a legacy and a meaningful sum for them when they are older and more responsible and on their own feet financially. I will have to consider all these options.
-JMK
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Re: Set up ROTH's for adult kids without them knowing

Post by Oregon Beancounter »

Statistical wrote: Sat Jul 31, 2021 3:38 pm
JayDee37 wrote: Sat Jul 31, 2021 2:31 pm First, the contribution limit for all your IRAs (Roth or otherwise) is a collective $7k (assuming you are over 50 and using catch-up contributions). That's not a lot to spread between your own IRA and any additional IRAs that you set up with your kids as beneficiaries. I don't think it would be legal to set up any IRAs in the kids' names without their knowledge.

Second, if you are that worried about your kids misappropriating funds that you are gifting to them, it may be more useful to start having honest conversations with them about personal finances, strategies for financial well-being, and your hopes for their futures. Just leave them money in your trust/will if you think they can't be responsible with it in the meantime.

Finally, I am generally not in favor of anything smacking of subterfuge/financial secrecy between spouses or between parents and children. Not that parents and children need to know all of each others' business, people have a right to privacy about their own financial affairs. But when you are attempting to impact the financial affairs of others (kids in this case), it's best to be open with them.
It it is actually the opposite. The limit is $6K PER PARTICIPANT. You can't contribute your $6K to anyone but yourself. The kids have their own $6K but it is their own $6K legally the OP can't even contribute it for them. They could gift it to them and they contribute it but contributing to someone else's IRA against their express permission is 100% illegal. Worse if the kids didn't know and contributed their own $6K it would lead to unlawful overcontribution issues and tax audits.

So all around the OP idea is horrific on multiple levels. Likely the stuff of CPA nightmares.


We called this “too cute by half” when I was in practice. The secretive nature of these schemes always seemed to blow up in my experience
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Re: Set up ROTH's for adult kids without them knowing

Post by chemocean »

Didn't read all the thread.
If the children have the earned income, you could "gift" them $6000 a year that THEY would contribute to THEIR Roth IRA that THEY established. As said in previous posts a gift cannot not have strings attached to it. If they want to spend the $6000 on other things, that is their right.
But YOU could let them know that the next years gift of $6000 will require documentation that that they invested the $6000 from last year in a Roth IRA and LEFT all previous contributions and gains in their Roth IRA account.
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Re: Set up ROTH's for adult kids without them knowing

Post by Luckywon »

Lee_WSP wrote: Sat Jul 31, 2021 4:35 pm
Luckywon wrote: Sat Jul 31, 2021 4:29 pm
Lee_WSP wrote: Sat Jul 31, 2021 2:51 pm
JMK909er wrote: Sat Jul 31, 2021 2:29 pm I don't know anything about blind trusts. Can anyone tell me more about this?
You'll need the help of a lawyer, but you'd setup an irrevocable trust with yourself as trustee. That's the broad stroke anyway.
Would this require the beneficiaries knowing about it?
Maybe. However, I'm not entirely sure what the consequences of failing to inform them would be in the first place. But if it's setup as a pass through trust, you need to tell them so they claim the income.
I suppose if someone told me they named me beneficiary of an irrevocable trust a few years back but never told me about it, my first impulses would not be punitive. :sharebeer
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Re: Set up ROTH's for adult kids without them knowing

Post by Lee_WSP »

Luckywon wrote: Sat Jul 31, 2021 6:38 pm
Lee_WSP wrote: Sat Jul 31, 2021 4:35 pm
Luckywon wrote: Sat Jul 31, 2021 4:29 pm
Lee_WSP wrote: Sat Jul 31, 2021 2:51 pm
JMK909er wrote: Sat Jul 31, 2021 2:29 pm I don't know anything about blind trusts. Can anyone tell me more about this?
You'll need the help of a lawyer, but you'd setup an irrevocable trust with yourself as trustee. That's the broad stroke anyway.
Would this require the beneficiaries knowing about it?
Maybe. However, I'm not entirely sure what the consequences of failing to inform them would be in the first place. But if it's setup as a pass through trust, you need to tell them so they claim the income.
I suppose if someone told me they named me beneficiary of an irrevocable trust a few years back but never told me about it, my first impulses would not be punitive. :sharebeer
Exactly.
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Re: Set up ROTH's for adult kids without them knowing

Post by Doom&Gloom »

What I did with DS when he turned 21 a few years ago:

Sat down with him and explained that I wanted to open a Roth for him. He had no idea what that is, so I gave him an overview. We established the account with VG and he granted me access as an authorized agent.

I told him the conditions were:
I would fund the max every year until I decide not to--totally at my discretion for any reason or no reason at all. (I transfer the funds to his checking acct just before pulling them from his VG Roth. Of course I have to advise him not to spend them for the day or two they are in his checking account.).

He can pull any amount he wants from the account for any reason at any time. I advised him that doing so will result in my ceasing to fund the account any further.

I will manage the account until he tells me that he is ready to do so. (Currently in a target date fund.)

He is not at all interested in investing. Almost four years later I doubt that he could estimate his balance and may well have forgotten the account even exists. That suits me fine; he will certainly be reminded of its existence when I die if not before then. We have not discussed the account at all since we established the account except for the times I have to inform him that cash will appear in his checking account and then disappear.

This is not a recommendation to OP, but just some ideas for him to kick around as alternatives. This approach works for our purposes; it may not work for anyone else.
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Re: Set up ROTH's for adult kids without them knowing

Post by RyeBourbon »

Doom&Gloom wrote: Sat Jul 31, 2021 7:09 pm What I did with DS when he turned 21 a few years ago:

Sat down with him and explained that I wanted to open a Roth for him. He had no idea what that is, so I gave him an overview. We established the account with VG and he granted me access as an authorized agent.
My college aged kids opened their own Roths with summer earnings before I had a chance to discuss it with them. :D
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Re: Set up ROTH's for adult kids without them knowing

Post by riverant »

JMK909er wrote: Sat Jul 31, 2021 5:06 pm Thanks for all the input. I know the money will be too tempting for them to tap into it if they can plus we live in San Diego, CA where everything is SUPER expensive. I want it to be a legacy and a meaningful sum for them when they are older and more responsible and on their own feet financially. I will have to consider all these options.
Sounds like financial advice and education is currently more important that a financial gift.

Seems like two options. Keep your money until you bequeath it to them when you die. Or, keep your money until you decide you’d like them to start spending it. While there are gift tax constraints, you and your spouse can gift to them and their spouse in a given year, which increases those constraints. Or, just lump sum gift and subtract it from your lifetime gift tax exemption.
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Re: Set up ROTH's for adult kids without them knowing

Post by cchrissyy »

JMK909er wrote: Sat Jul 31, 2021 5:06 pm Thanks for all the input. I know the money will be too tempting for them to tap into it if they can plus we live in San Diego, CA where everything is SUPER expensive. I want it to be a legacy and a meaningful sum for them when they are older and more responsible and on their own feet financially. I will have to consider all these options.

I think you should coach the while you are alive, including maybe by giving annual gifts.

you initial idea of building money for them that would be a surprise upon your death is not likely to be well-managed or wisely invested. if their skills and personalities are such that they spend any little windfall, then you should assume leaving them an inheritance they are not expecting and not equipped to handle is just going to be misspent.

like others above, I contribute to my kids brokerage accounts and roth iras to give them a head start as investors, but those accounts belong to them and the contributions must be with their help because I need to know their earned income qualifies them that year and that they haven't already contributed. every year I teach them again how to deposit the right amount of money, how to buy funds, how to check last year's performance, and what the legal rules are for taking money out someday, and what is my hope/intention for them to do. i also make them sit with me when i file their tax returns, but perhaps your kids are too old for that and/or you don't do taxes yourself. i always have.
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kelvan80
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Re: Set up ROTH's for adult kids without them knowing

Post by kelvan80 »

If they are working maybe you could help them setup their Roth IRAs and match their contributions to incentive them to save? I certainly wouldn't put money in an IRA if I didn't feel that my kid was responsible enough to not tap it like an emergency fund. I have a 17 year old and 15 year old so I get personality differences play a huge role in this. I have a saver and a spender but we plan to dangle the match in front of them once they get their first real jobs.
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Re: Set up ROTH's for adult kids without them knowing

Post by Pessimist55 »

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MahoningValley
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Re: Set up ROTH's for adult kids without them knowing

Post by MahoningValley »

Another option that is a little out of the box would be to open jointly owned brokerage accounts for each of the children. Then purchase Municipal Bond Closed-End Mutual Funds and set the dividends to reinvest into the fund. Or directly purchase Muni Bonds. Sooner or later the fed has to raise rates.
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Re: Set up ROTH's for adult kids without them knowing

Post by livesoft »

Maybe the adult children already have their own Roth IRAs but didn't tell their dad about them?

But the OP can do anything they want to with their own Roth IRA including dividing it into 3 separate Roth IRAs with 3 separate beneficiaries. I think it would just be better to have one Roth IRA and put the 3 offspring as the beneficiaries ... though one needs to think about the spouses and children, too, and when/if any of the OP's children die first.

And I am probably repeating what has already been written: The I in IRA stands for "Individual", so there cannot be a co-owner to an IRA whether Roth, traditional, SEP whatever.

And in one's old-age, say over 59.5 years of age, one can withdraw from their own Roth IRA without taxes and just give the money to their children. That is, there is nothing special that the OP needs to do ... no blind trusts, no shenanigans, no nothing.
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PaulW
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Re: Set up ROTH's for adult kids without them knowing

Post by PaulW »

This is what we did and it seems to be working for us for 10+ years.

Our child was maxing out a 401(k) but not contributing to a Roth. We said that we would contribute to a
Roth with 4 conditions. They decided on a Vanguard Target Date fund.
1. They would use it to support us if we ever needed help. (We have a withdrawal rate of less than 2% annually so support not likely to be needed.)
2. They would not touch the account till retirement age.
3. Annually they give us the statement showing the account activity for the year.
4. They are free to terminate this arrangement at any time.

Part of this is knowing your child. We have no way of enforcing items 1 to 3 but trust that it is not an issue.

It makes us feel good to look at the annual statement and see the balance growing.

Both parents and child are happy with our arrangement.

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Wiggums
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Re: Set up ROTH's for adult kids without them knowing

Post by Wiggums »

JMK909er wrote: Sat Jul 31, 2021 5:06 pm Thanks for all the input. I know the money will be too tempting for them to tap into it if they can plus we live in San Diego, CA where everything is SUPER expensive. I want it to be a legacy and a meaningful sum for them when they are older and more responsible and on their own feet financially. I will have to consider all these options.
It sounds like you have very good intentions regarding your children and many options to consider. Obviously, the easiest thing is yo leave the money in your will. If you want to transfer the assets (somewhere), and put limitations on the money, ypu will probably needed a lawyer who handles trusts. I know someone who had to create a trust that released money in stages, based on the children’s age. She didn’t want her cheating ex to get money thru their children.

In our family, we talk about balancing life with savings. We are happy to gift money knowing they are responsible with the usage.
Last edited by Wiggums on Sun Aug 01, 2021 1:27 pm, edited 1 time in total.
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gwe67
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Re: Set up ROTH's for adult kids without them knowing

Post by gwe67 »

SchruteB&B wrote: Sat Jul 31, 2021 4:36 pm
gwe67 wrote: Sat Jul 31, 2021 2:21 pm
Must be reported on their tax returns.
A Roth IRA contribution is not reported on a tax return.

A Roth IRA differs from a traditional IRA in several ways. Contributions to a Roth IRA aren't deductible (and you don't report the contributions on your tax return)

https://www.irs.gov/taxtopics/tc451
I was talking about Form 5498. The kids would receive these forms and therefore know about the contributions. The contributions have to be reported to the IRS (usually by the institution) for the five year rule.
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ddurrett896
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Re: Set up ROTH's for adult kids without them knowing

Post by ddurrett896 »

I’d encourage them to save and match whatever they contribute.
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Re: Set up ROTH's for adult kids without them knowing

Post by Tink221 »

Would there be a disadvantage to opening distinct taxable brokerage accounts meant to be given to each child at the time of your passing? When you die they would get the step-up basis and they could then access the money tax free, correct?
Isabelle77
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Re: Set up ROTH's for adult kids without them knowing

Post by Isabelle77 »

Please don't do this. My husband's grandmother set up a ROTH for him without his knowledge. She contributed to it for several years and then passed away. In our late 30s we went to apply (unknowingly) for a mortgage at the same bank that had the ROTH and it caused all kinds of issues.
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Re: Set up ROTH's for adult kids without them knowing

Post by delamer »

Tink221 wrote: Fri Aug 20, 2021 11:42 am Would there be a disadvantage to opening distinct taxable brokerage accounts meant to be given to each child at the time of your passing? When you die they would get the step-up basis and they could then access the money tax free, correct?
During your lifetime, the money would be in your name and so could be taken by creditors or end up causing you to be denied or have limited access to certain government benefits. And you’d have to pay taxes on any earnings.

Once you are gone, the step-up would happen as you describe (under current law).
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CAsage
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Re: Set up ROTH's for adult kids without them knowing

Post by CAsage »

Just open a regular brokerage account in your name, and set it up TOD for the 3 kids after your death. They will get a step up on the tax basis and can then inherit tax free (current law, anyway). It's still your money until you pass.
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