Retirement and Inheritance Fund Planning

Written By: Carly Hensley, CFS®

No matter how old children get, parents will always see them as their little kids. They have years of memories of helping them get through life by offering guidance and supporting them emotionally and financially. Even when parents reach retirement age, they’re still focused on helping their children where they can, such as an inheritance.

But saving enough for retirement while also leaving money to pass on isn’t an easy task. It takes dedication, and oftentimes the help of a certified financial planner to identify ways to cut costs, maximize investments, and achieve longevity in your accounts. Merit’s financial advisors receive a lot of questions about retirement and financial planning for families with children. One of Merit Financial’s retirement specialists, Carly Hensley, answered frequently asked questions to explain how retirees can plan for retirement and their children’s future.

Is There an Average Amount to Leave Behind?

Carly: This is a common question that has a different answer for everyone. Whatever amount is left behind varies for each family or estate, and you shouldn’t sacrifice your retirement to meet an arbitrary threshold. A trend that we’re noticing is that retirees are redefining what ‘leave behind’ means. They want to be around to see their children enjoy their ‘inheritance’ so they’re taking advantage of the IRS’s rules on monetary gifts.

How much money can a person receive as a gift without being taxed?

Carly: Once a year, the IRS allows you to give up to $15,000 as an untaxed gift, with couples able to give up to $30,000. Instead of giving the maximum amount, parents are increasingly giving their children incremental monetary gifts of a couple thousand every 2-3 years.

Should I Take Money Out of Retirement Accounts to Help my Children?

Carly: We’re routinely asked by parents if they should take money out of their own retirement to help set up accounts for their children. I’ve found that instead of penalizing themselves for dipping into those accounts, there are a couple of ways to financially help their children without the fine. For children who are too young to have a Roth IRA, parents can set up a 529 Plan or use the Uniform Transfers to Minors Act (UTMA).

The 529 Plan can only be used to pay for education, so this would help build a future without student loans. Plus, if one child doesn’t use the whole amount the beneficiary can be changed to the next child preparing for college. The UTMA is an account that parents can use to transfer gifts to their children, such as money. However, when the child turns 18 they become the sole owner of the account and can spend it however they want, so use caution when gifting money to children.

Another option is to wait until the required minimum distribution age of 72 when giving money and depositing some of that amount into their adult children’s Roth IRA. This is only advisable if you can afford to live without that money.

How Can We Cut Costs as Empty Nesters?

Carly: There are always steps that you can take to help your children’s future while also cutting your own expenses when they leave the house. When parents become empty nesters they have a massive opportunity to increase their savings and plan for a more comfortable retirement. Usually, at least one spouse is still working and expenses should decrease.

Obvious money-savers come in the form of buying fewer groceries. But having your children get on their own cell phone plan is a great way to teach them budgeting while helping your own account. Other couples have all the bells and whistles for their cable package and then realize they don’t need that anymore. It’s the same with money that was dedicated to a club or sports team.  Now the money is freed up to be invested for the future!

A Certified Financial Planner Can Help Guide You And Your Children’s Future

If you have questions about planning for retirement, reach out to us today to set up a consultation. Our expert financial planners can help find ways to get the most out of your retirement while also keeping an eye on what you’ll leave behind.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual,

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax-free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.