Tax Deferred Annuity Basics

[Anonymous]

I am thinking about opening up tax deferred annuity accounts for my kids. Their college is totally taken care of at this point. I understand I can gift up to 28000/child (14 from me and 14 from DW). I plan to fund them next 3-4 years so each kid will have 90k-110k seed money. Thinking about setting up an index fund account and let them sit on it until they retire.

Thoughts?

[Anonymous]

We are doing something very similar.

College is covered, now we are working on the investment account - only one kid which makes it much much easier. Probably won't even tell him this account exists until it is absolutely necessary. Don't want him planning around it.

[Anonymous]

How old are your kids?

[Anonymous]

Are you thinking of just having an UTMA brokerage account or an actual annuity? Personally I'd stay far away from an annuity (and it's worth thinking about how you'll. deal with things once the kid is of age and it becomes their property ).

[Anonymous]

Anonymous wrote:How old are your kids?

PP here

5 - and yes, in our case, just a brokerage account

[Anonymous]

Anonymous wrote:Are you thinking of just having an UTMA brokerage account or an actual annuity? Personally I'd stay far away from an annuity (and it's worth thinking about how you'll. deal with things once the kid is of age and it becomes their property ).

OP here - I am thinking actual annuity account. My kids are older than PP's kid - late teen/slightly over 20 - and they have proven, so far anyway, they are growing up to be responsible adults. They saved us a lot of money by not insisting on 60k/year colleges and this is our way to say "thanks kids."

[Anonymous]

Anonymous wrote:

Anonymous wrote:Are you thinking of just having an UTMA brokerage account or an actual annuity? Personally I'd stay far away from an annuity (and it's worth thinking about how you'll. deal with things once the kid is of age and it becomes their property ).

OP here - I am thinking actual annuity account. My kids are older than PP's kid - late teen/slightly over 20 - and they have proven, so far anyway, they are growing up to be responsible adults. They saved us a lot of money by not insisting on 60k/year colleges and this is our way to say "thanks kids."

I don't see why you'd use an annuity-- just a lot of fees and black box crap. Your kids are probably not in a high tax bracket so they don't even benefit that much from the tax deferral. You are better off with a low cost index fund, or maybe a balanced fund. Just have a discussion with them that you are gifting them the money and plans for investing it.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Are you thinking of just having an UTMA brokerage account or an actual annuity? Personally I'd stay far away from an annuity (and it's worth thinking about how you'll. deal with things once the kid is of age and it becomes their property ).

OP here - I am thinking actual annuity account. My kids are older than PP's kid - late teen/slightly over 20 - and they have proven, so far anyway, they are growing up to be responsible adults. They saved us a lot of money by not insisting on 60k/year colleges and this is our way to say "thanks kids."

I don't see why you'd use an annuity-- just a lot of fees and black box crap. Your kids are probably not in a high tax bracket so they don't even benefit that much from the tax deferral. You are better off with a low cost index fund, or maybe a balanced fund. Just have a discussion with them that you are gifting them the money and plans for investing it.

I was concerned kids may get tempted to cash in before it's time - to buy first home, wedding, or whatever.

https://www.fidelity.com/annuities/FPRA-variable-annuity/overview

0.25% fee for Fidelity doesn't sound too bad.

[Anonymous]

So you are going to hit them with a 10% penalty for withdrawals before 59 and 1/2?

If you have the money to do this now and into the future and you have faith in your kids I would just open investment accounts in their names. If you have the money to do this indefinitely and want to have some legally enforceable restrictions, you might consider a crummey trust.

If you don't plan to do this repeatedly but you have some money now you want to set aside to pay for weddings or downpayments in the future, you could do that without actually giving it to the kids- just set up an account in your name and let them know (or not). Chances are the gift tax won't be significant hindrance to transferring the money later.

[Anonymous]

Anonymous wrote:So you are going to hit them with a 10% penalty for withdrawals before 59 and 1/2?

If you have the money to do this now and into the future and you have faith in your kids I would just open investment accounts in their names. If you have the money to do this indefinitely and want to have some legally enforceable restrictions, you might consider a crummey trust.

If you don't plan to do this repeatedly but you have some money now you want to set aside to pay for weddings or downpayments in the future, you could do that without actually giving it to the kids- just set up an account in your name and let them know (or not). Chances are the gift tax won't be significant hindrance to transferring the money later.

hmm... I didn't see it that way but I get your point. I was hoping it will discourage them from cashing in. I will think it thru again.

[Anonymous]

If you want to control them, don't put it in their names. Wait to give it to them when you think they've earned it or when you die. Forcing them to use it only for retirement and expecting preferential tax treatment is silly.

The other way to do it is to let go and trust your children will make the best decisions for themselves. Too much to ask?