Failed to explicitly state in the above that my 30-something, early career 'kids' have a first world problem of too-high incomes to make direct Roth contributions which requires the back door Roth approach.
Our portfolio is roughly 1/3 each across Roth IRA, Traditional IRA and taxable accounts (took about 15 years of partial Roth conversions and willingness to accept income taxes over those years to get there). For the last several years, we've been 'paying it forward' incrementally by dribbling our Roth funds to our kids each year in our Roth withdrawal amounts that equal the maximum that each child can contribute to a non-deductible Traditional IRA ($6000) followed by an immediate backdoor Roth conversion by them in their accounts. Maximal tax benefit of this approach for the recipients requires that each recipient child have zero existing balance in Traditional IRAs each year when the child makes the Traditional IRA contribution and subsequent immediate Roth conversion using our gifts. It took a couple years worth of Roth conversions by our kids to get to the point of zero balance Traditional IRAs (we helped share the children's conversion tax burden while their Traditional IRA balances were still low and it made tax sense). Once there, Roth funds targeted for kids in our accounts could be successfully transferred at zero/near zero tax cost to the recipient children thus extending the tax free growth period of our Roth funds from 10 years at our deaths to the children's lifetime. Our Roth position and the zero-balance Traditional IRA positions of our children allow this approach to work well (and it took work to get there), effectively bypassing the current 10-year distribution requirement of inherited Roth IRAs. Like Jonathan, we do not have the means to pass on full financial security to our children ( we are far from it). These annual incremental 'pay it forward' transfers feel right for us and our kids. Over time the annual incremental $6k/child moves have added up. When/if the back door Roth conversion regulations change, this particular jig will be up.
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Failed to explicitly state in the above that my 30-something, early career 'kids' have a first world problem of too-high incomes to make direct Roth contributions which requires the back door Roth approach.
Post: Paying It Forward
Link to comment from February 2, 2022
Our portfolio is roughly 1/3 each across Roth IRA, Traditional IRA and taxable accounts (took about 15 years of partial Roth conversions and willingness to accept income taxes over those years to get there). For the last several years, we've been 'paying it forward' incrementally by dribbling our Roth funds to our kids each year in our Roth withdrawal amounts that equal the maximum that each child can contribute to a non-deductible Traditional IRA ($6000) followed by an immediate backdoor Roth conversion by them in their accounts. Maximal tax benefit of this approach for the recipients requires that each recipient child have zero existing balance in Traditional IRAs each year when the child makes the Traditional IRA contribution and subsequent immediate Roth conversion using our gifts. It took a couple years worth of Roth conversions by our kids to get to the point of zero balance Traditional IRAs (we helped share the children's conversion tax burden while their Traditional IRA balances were still low and it made tax sense). Once there, Roth funds targeted for kids in our accounts could be successfully transferred at zero/near zero tax cost to the recipient children thus extending the tax free growth period of our Roth funds from 10 years at our deaths to the children's lifetime. Our Roth position and the zero-balance Traditional IRA positions of our children allow this approach to work well (and it took work to get there), effectively bypassing the current 10-year distribution requirement of inherited Roth IRAs. Like Jonathan, we do not have the means to pass on full financial security to our children ( we are far from it). These annual incremental 'pay it forward' transfers feel right for us and our kids. Over time the annual incremental $6k/child moves have added up. When/if the back door Roth conversion regulations change, this particular jig will be up.
Post: Paying It Forward
Link to comment from February 2, 2022