PersInv -- May 29, 2024

Locator: 47979PERSINV.

Tag: intergenerational wealth transfer. 

Updates

July 16, 2024: one beneficiary can be a beneficiary of multiple "529" plans -- the total beneficiary limit is the sum of all "529" plans, but only one 529 plan in each state. Thus, Sophia could have a "529" in Kansas for $475,000 plus a "529" in California for an additional $500,000. Link here.

July 16, 2024: with regard to the "529," Schwab defaults to the Kansas state "529," managed by American Century Investments, a very-well respected investment firm. Coincidentally, and purely through serendipity, I chose American Century for one of my IRAs over 30 years ago, and it's still going strong.

Kansas state treasurer, 529, website;

From Schwab regarding the rules of the Kansas state "529":

Original Post

Before we get started. If you want to understand how the US Congress "works," I can think of no example better than the "529." The "529" and the "amended 529" were designed specifically with the members of the US House in mind. Whether the timing of the "amended 529" had anything to do with RMDs and the 10-year depletion rule is in the eye of the beholder. I feel the timing of the "amended 529" was related to the glaring disadvantages of the traditional IRA.

Remember, the "owner" of the "529" can be changed at any time with a single signature.

Now, back to personal investing.

I track personal investing here, a series just for the extended family. 

The goal is to move my financial assets from my "accounts" and "my control" to the five grandchildren.

And we're making progress.

Yesterday,  I opened up a "529" for Sophia and made the first contribution. For all practical purposes, there is no limit on contributions to a "529." Don't take that out of context.

Those are the limits for each "529." There is not limit to the number of "529s" one can establish. 

"529s"? Some call them "educational savings funds." I call them "baby Roth IRAs."

This is the path, and it's a short path:

• for those able to do this, establish a "529" for each grandchild at the time of their birth
• appoint a family member to manage the overall "529" family plan on a yearly basis (maybe more on that later)
• contribution allocation changes
• change contributions based on need and Roth IRA limits
• change owners / beneficiaries based on need, limits
  
• at around age 20 for each beneficiary, establish a Roth IRA and begin transferring unneeded "529" education funds into the Roth IRA (or an already-established Roth IRA)

Comments:

• $35,000 doesn't sound like much, but it's a kick-start for establishing a retirement fund
• it's been my experience that the hardest thing about investing for retirement is getting started
• it would take a lot of work but there is not limit to the number of "529s" in which a beneficiary is named; there is a maximum lifetime contribution but ... the IRS may disagree -- something to discuss with others ... 

So, where does that money come from?

• dividends from existing personal accounts;
• RMDs;
• mailbox money, including tax refunds;
• capital gains: whittling down personal investment accounts

Net result: those sources all have combined effect of transferring our investments to the grandchildren. For example: 

• in the near term, add no more to our own investments; set limits on personal wealth and gradually drop those maximums
  
• e.g., if we have an investment account with $10,000 and it goes to $10,100 this year, we move $100 to the grandchildren
• starting the next year, (2025) we start transferring that principal ($10,000) to the grandchildren, perhaps 10% annually, as an example

Transition year: this year is our year of transition as we put the plan into effect; "emotionally" it will be difficult but handing this "control" off to the granddaughters will be very, very rewarding. 

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Next

Five grandchildren. The youngest two already have "529s" established (established at age three).

A "529" for Sophia added yesterday. First contribution made.

Two grandchildren left to go. The oldest graduates from college this year (one autumn semester left) but five years from now has plans to go to law school.

The fifth starts college this next fall, and has a full scholarship. But graduate school some ten years from now? Watch closely, and if no graduate school in the offing, convert the "529" to a Roth IRA in (2024 +15) 2039.

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Next After Next

It surprised me but it turns out the two oldest grandchildren have W-2 income despite one being in college and the other in high school (just graduated a few days ago).

Having learned that, I've asked them to open a Roth IRA this calendar year, and max out their allowable contributions into the new Roth IRAs and we will match them for their living expenses. This year and annually thereafter.

Disclaimer Briefly 

Reminder: I am inappropriately exuberant about the US economy and the US market, I am also inappropriately exuberant about all things Apple.

See disclaimer. This is not an investment site.

Disclaimer: this is not an investment site. Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here. 

All my posts are done quickly: there will be content and typographical errors. If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them.  

Reminder: I am inappropriately exuberant about the US economy and the US market, I am also inappropriately exuberant about all things Apple. 

Enough for now.