Is there a point then gifting $12k/year/child from IRA/401k?

Question

Since I cannot find how to followup your answers with another question, I have to pose another new question, sorry.

I did read it was a good idea to gift $12k/child/year prior to death. Perhaps they meant only if my income bracket is less than theirs? Or is there a better reason?

Thanks all.

Thanks all.

Answer 1

The first answer is very good regarding your primary question. I am responding the the part about 'followup questions'. As long as you question is open for answers. You can go to your profile and select the question under "My Questions". you can then add "Additional Information". This will then appear with the original question.

Answer 2

Most people will gift money to others to reduce their estate. For instance, if you gift $12,000/yr for the next 10 years, you've overall assets will be $120,000 less. Then, when you die, there will be less estate taxes to pay.

Again, this only applies if your overall gross estate is greater than the exemption, which will be $1M after 2011.

However, since the money is in your 401k/IRA, the gifting may trigger income tax, so that makes the overall strategy less appealing.

As you've probably notices, estate planning can be a tricky topic. In general, if your estate is less than $1M, I wouldn't worry about gifting. You'll probably just want to make sure you have a will, and perhaps a living trust in place.

However, if it's over $1M (or getting close to it), I would go to an estate planning attorney to figure out the best strategy to reduce your estate taxes. It costs a little more money, but considering how much you would save in the long run, it would be well worth it.

Hope that helps.