How to get TSP money to your kids while alive?

Managing your TSP and alternate investment options after retirement or separation from service.

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mmmmmbeer
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How to get TSP money to your kids while alive?

Post by mmmmmbeer »

So maybe none of us are tax attorneys, but I have sort of a question.

Say the numbers hold, and I have 2 million in TSP @ 65 years old.

How do I get $500k to each of my two kids without crushing them and us in taxes?
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mjedlin66
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Re: How to get TSP money to your kids while alive?

Post by mjedlin66 »

What ever happened to cash in a briefcase?
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WxMan0523
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Re: How to get TSP money to your kids while alive?

Post by WxMan0523 »

Will you be my Daddy?

Midway
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Re: How to get TSP money to your kids while alive?

Post by Midway »

To the best of my knowledge, you can't. It would have to be taken out, taxes paid, then given as regular money subject to gift taxes. Of course, once it is just money, you can get creative and try to minimize any additional tax hits.

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mjedlin66
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Re: How to get TSP money to your kids while alive?

Post by mjedlin66 »

Do it slowly over a period of 20 years.

The simplest way to subsidize others is by using the annual exclusion, which allows you to give $14,000 in cash or other assets each year to each of as many individuals as you want. Spouses can combine their annual exclusions to give $28,000 to any person tax-free – a process called gift-splitting.


You would still have to pay any income tax on your tsp withdrawals.
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panda_rama
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Re: How to get TSP money to your kids while alive?

Post by panda_rama »

I suppose you can't wait until you have passed on?

mmmmmbeer
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Re: How to get TSP money to your kids while alive?

Post by mmmmmbeer »

panda_rama wrote:I suppose you can't wait until you have passed on?


Yeah see I wanted to give it to them prior to me being dead. Pay off their student loans, buy them a house, etc... while they are young enough that it really matters.
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mjedlin66
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Re: How to get TSP money to your kids while alive?

Post by mjedlin66 »

mmmmmbeer wrote:
panda_rama wrote:I suppose you can't wait until you have passed on?


Yeah see I wanted to give it to them prior to me being dead. Pay off their student loans, buy them a house, etc... while they are young enough that it really matters.


Shouldn't this be working in the other direction? My parents spent a fortune keeping me alive with asthma for 10 years. For part of that my dad's union went on a 3 year strike and he worked part time jobs. Over the course of my life, my dad has had 3 major career changes and my mother has had 2. I am alive and successful because of them. So when it comes to gifting, I am thinking the opposite direction as you.

That doesn't even begin to cover the personal loans they have given me several times throughout life or the thousands of places they have driven me. It doesn't cover the job hunting and resume writing help. It doesn't cover the values they taught me which helped me become both successful and humble.

They are both about 60 years old and finally debt free as of last month (no mortgage). My siblings both will find their own career like I did and like my parents did. So if I am going to subsidize anyone, it will be my folks. I am considering buying them new cars or paying for whatever home renovations they want.
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evilanne
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Re: How to get TSP money to your kids while alive?

Post by evilanne »

mmmmmbeer wrote:So maybe none of us are tax attorneys, but I have sort of a question.

Say the numbers hold, and I have 2 million in TSP @ 65 years old.

How do I get $500k to each of my two kids without crushing them and us in taxes?
Current gift amount of $14K/year/person is the only way you can give them money without an tax impact on them. If you have grandchildren, you can gift to them or set up a college fund.

You have to pay taxes on whatever amount you withdraw from traditional TSP balance. Contributing to Roth TSP and paying taxes while working will give you more flexibility in managing any tax impact on you later and there is no tax on the Roth withdrawal of earnings and beneficiaries have no tax impact with Roth.

Have you looked at TSP Income Calculator? If you wait until RMDs are required, you will have to withdraw ~ $75K+ annually, assuming 5% RoR & $2M at age 65: https://www.tsp.gov/PlanningTools/Calcu ... dentAge=65 Roth is not subject to RMDs. Since you will retire much earlier, it makes more sense to give them a smaller amount over many years than a big amount all at once. With traditional TSP, beneficiary can transfer to inherited IRA and make withdrawals base on their life expectancy so they don't get hit with a huge tax bill all at once. I would make sure your beneficiaries know how to handle any inherited retirement funds.

crondanet5
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Re: How to get TSP money to your kids while alive?

Post by crondanet5 »

mmmmmbeer you might be able to purchase them houses through TSP withdrawals rolled over into a IRA real estate trust that could still be taxed after your death. That would keep the money in tax deferred status while you were alive and assure many visits in later life from your kids to keep you alive until you were 140. Might work. If you have 2 million in TSP your MRDs will pay for your expenses and you could use you federal pension to pay off student loans. Just tossing some ideas on the table.

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ArrieS
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Re: How to get TSP money to your kids while alive?

Post by ArrieS »

mmmmmbeer wrote:So maybe none of us are tax attorneys, but I have sort of a question.

Say the numbers hold, and I have 2 million in TSP @ 65 years old.

How do I get $500k to each of my two kids without crushing them and us in taxes?


Easy, don't. There, no taxes. Where do I send the bill for my consulting fee?

Wait to pass it along in the TSP or IRA where it keeps its tax shelter. The moment you take it out all gains are taxable. Keeping it in the TSP allows it to grow tax-free for them and for who ever they pass it along to also.

A poor mans family trust.

A good question to ask is why do you want to do this? Do they have huge medical bills? Because you could pay the bills yourself without gifting it to them and then there's no tax.
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PoorFed
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Re: How to get TSP money to your kids while alive?

Post by PoorFed »

I am not a practicing tax attorney but I did major in accounting and finance focusing in personal finances. I remember a course that basically covered everything to do with estates. The easiest way is what some has already mention to give cash straight up up to $14,000 per year under the gift tax exclusions. You and your spouse can each give $14,000 to each of your children in addition to their spouse and kids. For example, suppose you have one child who has a spouse and a kid. You and your wife can contribute a total of $84,000 to your child's "household" per year ($28,000 each to the child, child's spouse, and child's child). Besides the gift tax exclusion, no one has mentioned the gift tax EXEMPTION. It's too difficult to explain in this post but google it. In essence, this operates similar to how estate exemption operates. The difference between the two is that one is a tax on the transfer of wealth WHILE YOU ARE ALIVE and the other is AFTER YOU PASS AWAY. However, the two are related in that what is exempted now under the gift tax exemption decreases what is available after under the estate tax exemption. However this is just from what I remember from my days in college and perhaps the rules may have changed. My actual job now is in the 1102 series.

Shadowbend
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Re: How to get TSP money to your kids while alive?

Post by Shadowbend »

I saw this in the movie Shawshank Redemption. How about paying the taxes and converting it to a Roth, it'll still grow as invested and no taxes on the kiddies. I believe when you retire you can transfer your monies into a Roth and then transfer the Roth back to your TSP if you have contributed to a TSP Roth. I've been on the fence about doing something like this as well.

mmmmmbeer
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Re: How to get TSP money to your kids while alive?

Post by mmmmmbeer »

PoorFed wrote:I am not a practicing tax attorney but I did major in accounting and finance focusing in personal finances. I remember a course that basically covered everything to do with estates. The easiest way is what some has already mention to give cash straight up up to $14,000 per year under the gift tax exclusions. You and your spouse can each give $14,000 to each of your children in addition to their spouse and kids. For example, suppose you have one child who has a spouse and a kid. You and your wife can contribute a total of $84,000 to your child's "household" per year ($28,000 each to the child, child's spouse, and child's child). Besides the gift tax exclusion, no one has mentioned the gift tax EXEMPTION. It's too difficult to explain in this post but google it. In essence, this operates similar to how estate exemption operates. The difference between the two is that one is a tax on the transfer of wealth WHILE YOU ARE ALIVE and the other is AFTER YOU PASS AWAY. However, the two are related in that what is exempted now under the gift tax exemption decreases what is available after under the estate tax exemption. However this is just from what I remember from my days in college and perhaps the rules may have changed. My actual job now is in the 1102 series.


Interesting.... good info sir.
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mmmmmbeer
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Re: How to get TSP money to your kids while alive?

Post by mmmmmbeer »

ArrieS wrote:
mmmmmbeer wrote:So maybe none of us are tax attorneys, but I have sort of a question.

Say the numbers hold, and I have 2 million in TSP @ 65 years old.

How do I get $500k to each of my two kids without crushing them and us in taxes?


Easy, don't. There, no taxes. Where do I send the bill for my consulting fee?

Wait to pass it along in the TSP or IRA where it keeps its tax shelter. The moment you take it out all gains are taxable. Keeping it in the TSP allows it to grow tax-free for them and for who ever they pass it along to also.

A poor mans family trust.

A good question to ask is why do you want to do this? Do they have huge medical bills? Because you could pay the bills yourself without gifting it to them and then there's no tax.


Really... I want to just to be able to give them a leg up you know? How nice would it be.... to be in your early 30's or whatever..... and have no mortgage? No student loan debt? How much further on in the big scheme of things would that help them be?

I'm just saying... my single mom (God Bless her) had nothing to give us. I've worked my tail off for everything since I was 15.

Now that being said I want them to learn to work hard... but what a cool gift that would be... to do the Big Fat Greek Wedding thing. "Your parents bought us a house?!"

Anyway... If I have 2 million... who cares... I can't take it with me and I would love to see them enjoy it when young, when they need it.
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