Gifting Shares to Son to fund ROTH

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Bacchus01
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Joined: Mon Dec 24, 2012 9:35 pm

Gifting Shares to Son to fund ROTH

Post by Bacchus01 » Mon Apr 16, 2018 7:20 am

We committed to our kids that we would match their annual earned income each year and fund a ROTH with it. We believe it’s a nice additional incentive for them to work, is an educational opportunity, and helps us pass along wealth while we are around.

Can we give them shares from our after-tax investments? to do this? I understand they would not get step up and they would have to sell them before funding the ROTH. But would they pay any capital gains? Can you do it with Vanguard shares?

Let’s use a simple example. Son A makes $2K In earned income. We gift him $2K in Vanguard shares with a basis of $1500 for a LTCG of $500. He liquidated them and then funds his ROTH with equal amount. Would he pay LTCG tax? Would we?

Doable?

Wagnerjb
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Location: Houston, Texas

Re: Gifting Shares to Son to fund ROTH

Post by Wagnerjb » Mon Apr 16, 2018 8:03 am

Your strategy is sensible and many others do the same. You need to learn about the Kiddie Tax (or tell us much more about your situation) so that you can avoid paying capital gains taxes on the appreciation on those gifted shares.

Best wishes.
Andy

Gill
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Location: Florida

Re: Gifting Shares to Son to fund ROTH

Post by Gill » Mon Apr 16, 2018 8:11 am

Yes, your plan is fine unless you’re subject to the Kiddie Tax. Will they be under age 18 at the end of 2018?
Gill

Bacchus01
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Re: Gifting Shares to Son to fund ROTH

Post by Bacchus01 » Mon Apr 16, 2018 9:10 am

Wagnerjb wrote:
Mon Apr 16, 2018 8:03 am
Your strategy is sensible and many others do the same. You need to learn about the Kiddie Tax (or tell us much more about your situation) so that you can avoid paying capital gains taxes on the appreciation on those gifted shares.

Best wishes.

Thanks. I’m aware of the Kiddie Tax. Son is 16 and has no other dividend or CG. All growth in future would be ROTH, so not part of kiddie tax. Right?

b42
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Re: Gifting Shares to Son to fund ROTH

Post by b42 » Mon Apr 16, 2018 12:39 pm

My parents did something similar for me. When I was young they took birthday and gift money and invested it for me in a mutual fund, and when I was old enough they gifted it to me (was well under the yearly gift tax limit).

I converted the fund to an index fund, which did trigger a taxable event, but since I was in the lowest tax bracket the LTCG bill was $0 on my federal returns.

livesoft
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Re: Gifting Shares to Son to fund ROTH

Post by livesoft » Mon Apr 16, 2018 1:25 pm

We have gifted shares to our working kids that they immediately sell. Since they have earned income from jobs, they use the money to contribute to their Roth IRAs. So the answer to the question is YES!

Of course, they get to learn about filling out tax returns, how to report their 1099-B and 1099-DIV, Kiddie Tax, etc.
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Bacchus01
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Re: Gifting Shares to Son to fund ROTH

Post by Bacchus01 » Mon Apr 16, 2018 3:18 pm

livesoft wrote:
Mon Apr 16, 2018 1:25 pm
We have gifted shares to our working kids that they immediately sell. Since they have earned income from jobs, they use the money to contribute to their Roth IRAs. So the answer to the question is YES!

Of course, they get to learn about filling out tax returns, how to report their 1099-B and 1099-DIV, Kiddie Tax, etc.
Excellent. Thanks. I’m going to do this for 2018 for sure.

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