Ask Terry Questions A good mutual fund to invest for the grandkids who are in their 20’s

A good mutual fund to invest for the grandkids who are in their 20’s

By Terry Savage on August 24, 2018 | Wild Card

We would like to put the money in a mutual fund in our name for the grand kids to get after we die. We will make the 4 grand kids as beneficiaries.

Terry Says

That’s very generous of you — but let me give you some suggestions. If the grandchildren were young, you might open a 529 college savings plan. Here’s a link to a recent column on the subject. The money in this type of plan will grow tax-free to be used for college expenses. And if you decide you need the money for yourself before they go to college, you can withdraw the money –paying a 10 percent penalty and taxes on the gains. Even if the grandchildren are finished with college,they can keep the money growing for their OWN children’s college educations! But they cannot use the money to pay their own student loans.

So let’s go back to the idea of a gift. Traditional mutual fund accounts do not have “beneficiaries.” When you die, the asset becomes part of your estate. (You could open an account in “joint name” with a grandchild, but that is a bad idea because they could withdraw the money at any time!) But your will or revocable living trust “governs” the distribution of traditional mutual fund accounts. You would name your grandchildren in your will to receive a certain percentage of all your assets — or specific assets, such as a named mutual fund.

BUT, if it is an IRA account, then you can name a beneficiary. It would have to be YOUR IRA — with money you have contributed from earned income in the year you make the contribution. So if you are retired, this wouldn’t work for new contributions.

However, if you have an existing IRA, you could name the grandchildren as equal beneficiaries of the account to become theirs at your death. If you decide to take this path, be sure to leave instructions for them NOT TO WITHDRAW the money and spend it, but to let it keep growing for their own future. The custodian of the IRA — mutual fund or bank — will let them know their options for rolling it into their own names and requirements for distributions.

I understand your desire to be generous if you do not need the money in your lifetime. But make sure you consult an estate planning attorney to do it properly. The above are just some suggested guidelines.



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