Coming up with a retirement plan that looks out for you as well as your children is a balancing act. The goal is to provide for yourself after you've stopped working and share wealth with your children, but not run through your retirement income to the point where you become a dependent.
If your retirement income outlasts you, one question is how to address the balance that would go to heirs.
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A wealth manager can help plan for scenarios like these. As one example, if a child stands to inherit the unspent portion of a retirement account,
Kiplinger suggests that a tax-exempt Roth IRA might be a parent's best choice up front.
"Your heirs will thank you because they, too, can take distributions from an inherited Roth IRA tax-free," Kiplinger reports, noting that inherited money from a non-Roth IRA "is taxed in the heir's top tax bracket."
The downside? If you die with unpaid debts, and creditors come after your estate and your assets, an inherited Roth IRA is not necessarily shielded under the U.S. Employee Retirement Income Security Act (ERISA) of 1974.
"Judgment creditors may be able to seize retirement plans that are not qualified or covered under ERISA,"
Stephanie Lane writes for Nolo.com, a legal information clearinghouse.
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As of 2015, a parent can gift up to $14,000 in cash every year to each child, and those gifts do not count toward the lifetime federal estate tax exemption, which stands at just more than $5.4 million as of 2015.
Likewise, any money — in any amount — that is designated for a child's educational or medical needs is excluded from the estate tax exemption total.
As time goes by and wealth accumulates, it becomes clear that considerations surrounding retirement, trusts, estate planning and strategies to help children (and grandchildren) pay for college increasingly overlap.
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