How much do YOU think YOU need to retire? ...and at what age will you (and spouse) retire? (Part 1)

Hey, some folks have found some use for that wasted heat. :slight_smile:

https://news.bitcoin.com/siberians-use-cryptocurrency-miners-heat-homes/

As H and I prepare for retirement we also want to start saving for our grandchildren. Can anyone here point me in the right direction for reading about investments for newborn grandchild? Canā€™t decide if 529 is the right vehicle.

NMinn, I am not an estate planning attorney, so take my advice with a grain of salt. personally, I would wait until the horrible mess aka the tax cut gets sorted out. Should be happening sometimes next year or so. :slight_smile: Regardless of what happens to estate tax on federal level, you might need to consider your state estate tax implications for your gifts to GCs (whether there are any state generation-skipping tax issues to worry about). In my state, I can give anyone any amount without any state estate tax issues! But my residual estate will be taxed by the state on any amount over the $2.2M or so. Your state might have different rules.

As far as where to put the gift, 529 plans, UTMA (or whatever it is called now) accounts, and trusts seem to be the way to go. Paying tuition or medical expenses directly to the provider also avoids any gift tax issues at federal level (at least this year). This is a good general overview:

https://www.nerdwallet.com/blog/insurance/6-ways-grandchildren-great-financial-future/

We opened a 529 in our state for our new granddaughter since we got a deduction on our state taxes for doing so.

Thereā€™s also the Coverdell educational IRA, which is how we saved $$ for our kids college. It depends on how much money you are planning to save/invest as to how much effort youā€™d be putting into finding the perfect tool.

Hereā€™s an article I found, @NorthMinnesota: https://www.nerdwallet.com/blog/insurance/6-ways-grandchildren-great-financial-future/. In my case, I am doing two things. We have a dynasty trust that contain money for the kids, and if there is enough in there, the grand-kids who, of course, do not yet exist. In addition, I am about to re-fund the 529 Plans we created years ago and when the grandkids arrive, I can change the beneficiaries from the kids to the grandkids.

Coverdell has income limits? I think? I am not sure how it works for grandchildren.

I opened and heavily funded 529 plans for my 2 sons. My in laws gave mutual funds as gifts to their grandchildren when they were very young. They were in my wifeā€™s name as custodian. They were funds that I never would have invested in: One was a small cap fund, the other a junk bond fund! Both have done very well. Since you are investing for a fairly long (18 year) time period your investment will benefit from being low cost, like an index fund.

Hereā€™s the IRS link on Coverdell accountsā€”max $2,000 per child/year can be contributed. I believe no contributions once beneficiary reaches age 18!!

https://www.irs.gov/taxtopics/tc310

@shawbridge How does the dynasty trust work? Do you not give the annual gifts to your kids/grandkids?

@HImom I thought high earners canā€™t open a Coverdale to begin with

@Iglooo I read this and though of you and your comments here:
https://www.washingtonpost.com/news/wonk/wp/2017/12/01/gop-eyes-post-tax-cut-changes-to-welfare-medicare-and-social-security/

I read that, too. That was all over the news. Often headlined. Some say after the tax bill, it will be hard to take on another big thing. We will have to see the details, given that entitlement reform was needed for a while now. Iā€™ll have to wait and see if GOP is as evil as media and people make them out to bel. I donā€™t approve the hype about the new tax. I donā€™t buy the new tax plan is totally irresponsible. There are things I donā€™t like and things I do like. I donā€™t like the changes in estate tax but I do like that they kept lifetime gift limit to the present $5.5M. I do like some deductions are eliminated. I do not like some deduction are still allowed. I do like that salaries over $1M are reined in and will be taxed. I do also like that they kept 39.6% for income over $500K/$1M. I do not like that the threshold is not lower than $1M. I think media and people are picking the worst part of the proposal and sensationalizing it. I think there were some responsible measures in the bill thatā€™s hardly mentioned. I hope there will be something good in the entitlement bill if thereā€™s one. We are not here today because of just one party. Itā€™s both of them doing the same thing with a different color. Blindly condemning the other gives license to kill to one.

Igloo, please letā€™s keep your dislike of charities confined to the tax thread where it is more appropriate.

@veruca, yes, the IRS link mentions a maximum income for setting up a Coverdell. We were well below that max when we set up the account for our kids.

I believe I may be retiring in 2020. There, I put it in writing :slight_smile:
This somewhat depends on the stock market, and my kids adulting a little more, but I think it might really happen.
I am starting to really think about it. I will still be pretty young by many measures, but my mom and her sister both died about 70, and they both had dementia, and that weighs on me.
Of course the other side of me says I need to stay busy with work to keep my mind active.

@iglooo, a dynasty trust uses the assets of the trust to support its beneficiaries and their progeny for as many generations as the money lasts (hence the name dynasty). A trustee can make distributions that are consistent with the stated goals of the trust. Ours focuses on the education, health, welfare, housing, etc. of the beneficiaries. So, it could a) pay for education, b) help with a downpayment on a house, c) buy a condo as an investment that a child could live in (and pay rent to). Distributions are at the discretion of the trustee. I donā€™t give annual gifts to my kids. But, distributions from a trust are not considered gifts so gift tax is not relevant. One potential benefit of a trust is that the proceeds are exempt from estate tax. While some states still have estate taxes, the current tax bills would seem to eliminate estate tax. However, when the pendulum swings back and the government needs money, perhaps the estate tax will be a natural for the government to pursue. Another potential benefit: The trustee also does not have to be balanced in dealing with the kids if one makes $20 MM by age 30 and the other is a solid worker but never going to make millions.

I am assuming you have a very trust worthy trustees. The setup sounds like a very long term. About that estate tax elimination, we never changed trust terms when they changed the limits starting when the exemption used to be $1M.

You canā€™t change the terms of an irrevocable trust, only in very specific situations.

Trusts and Estates 101. :slight_smile: A dynasty trust is an irrevocable trust meaning the person who set the trust canā€™t dip into the trust or be a beneficiary. Additionally, a dynasty trust can be subject to the rule of perpetuities in some state (mine abolished this rule), which usually means that the trust cannot exist longer than 21 years after the death of last beneficiary that was in existence when the trust was set up. As far as trustees go, people name institutions as trusteesā€¦ a trust can fail for many reasons but a trust will not fail if there is no trustee as that is easily fixable by a court appointment. As far as trusts go, a revocable trust is just property of the trustor and is taxed accordingly. An irrevocable trust is a separate entity, and there are tax implications, too. If some form of estate tax remains, dynasty trusts will be subject to estate taxes including the so called generation skipping tax (GST). A huge benefit of an irrevocable trust is the ability to shield the trust assets from creditors by including a ā€œspendthrift provision.ā€ If the trust is set up properly, creditors of a financially irresponsible kid cannot dip into the trust and grab the assets - they can only get what the kid receives after it is distributed to her. Of course, the IRS and courts can bypass the spendthrift clause - if the beneficiary owes taxes or child support.

This is a good general overview of what such trust does (and does not):

https://www.aicpa.org/content/dam/aicpa/interestareas/personalfinancialplanning/resources/practicecenter/forefieldadvisor/downloadabledocuments/ffdynastytrustcasestudy.pdf

Disclaimer: I am not an estate attorney (only stayed at a Holiday Inn Express of sorts :wink: ), and even if I were, I am not your attorney. Always seek professional advice when in doubt. :slight_smile:

BB, I am painfully aware of restrictions of irrevocable trusts. In the middle of tinkering the third irrevocable trust, at the mercy of lawyers and bankers.