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Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
Welcome to How to Retire On Time, a show that answers your retirement questions. My name is Mike Decker. I'm the founder of Kedric Wealth. And joining me in the studio today is my colleague, mister David Franson. David, thanks for being here.
David:Glad to be here. We're gonna be
Mike:taking your questions. Text them right now to (913) 363-1234. Again, that number, (913) 363-1234. Let's begin.
David:Hey, Mike. What are ways you've seen people give to their kids and grandkids? Yeah.
Mike:A couple of fun ways to do it. First off, you've got just giving assets under the gift tax exemption. So each year, there's a certain amount that you can gift without worrying about it. And those are experiences while you're alive and while they're alive. It's kinda nice.
Mike:If you wanna gift more than that, this is commonly misunderstood, you can gift as much as you want. It's just if it's over the gift tax limit, you've got to use what's called form seven zero nine of the IRS code. You're just gifting part of the estate tax exemption early. What is that? Yeah.
Mike:Yeah. Doesn't that sound like Greek?
David:Yes. This will be fun.
Mike:Blame the IRS tax code for all these weird phrases. So the estate tax exemption basically says, if your estate is over a certain threshold, you're not paying estate taxes. K? So if you've got cash in the accounts and you wanna gift, you can gift it. No problem.
Mike:But if it's over a certain amount, you just have to let them know that you're basically taking I think it's, 12,000,000 right now is the estate tax exemption limit. So you're gonna take maybe a million of your $12,000,000, and you're gonna gift it to the kids now for whatever reason. And it's a great thing for helping them buy their first house, which is difficult to do. It's a great thing for helping them start their first business if they're entrepreneurial. If they're gonna pay for college, don't give them money.
Mike:Just pay the college directly. Because if they're not touching the asset, it doesn't really count as a taxable situation. You're you're buying the college, or you're buying the time for the tuition. So there are different ways around that you can gift in that sense. Generally speaking, though, I've found that one of the more memorable ways to gift is to gift memories.
Mike:The trip to Disneyland or Universal Studios, ironically, the one that I remember as a kid, most of all, with my parents, was Knott's Berry Farms. I don't even know if it still exists. Yeah. But Knott's Berry Farms in Southern California. We went to Disneyland.
Mike:Uh-huh. And then we went to this place called Knott's Berry Farms, and I remember that more than anything. There was this one ride called Montezuma's Revenge. Allegedly, like, it was so scary people would, like, wet themselves. And so I was like, yeah, sign me up.
Mike:I didn't wet myself, but it was as an eight year old kid or whatever age I was at the time, but, like, those are memories you'll you'll have for the rest of your life. My grandfather, before he passed, when he was still in good health, he rented a dude ranch in the middle of nowhere, and we went there. The whole extended family all flew in, and we spent a whole week together. I'll never forget that. So these memories will almost do more from a relationship and like a legacy standpoint, so these are things to consider.
Mike:If you're paying for it all, that's not really a taxable situation to them. As long as, know, you take money out of an IRA, you're gonna get taxed. If you sell assets, you're gonna pay capital gains. But generally speaking, yeah, memories are a great way to gift. If you're gonna gift more than the gifting limit, then just let your CPA or adviser know if they're a qualified comprehensive adviser.
Mike:They can fill this out for you. It's not hard, but yeah, it's memories and helping them get to the next level of their life.
David:Some might wonder, like, should I even gift? Is it even a good idea? Are there any situations you've seen where maybe it's like, just don't do any gifting?
Mike:Yeah. Trust on Uh-huh. Don't enable bad behavior. So the kids that receive wealth the best are the ones that are self sufficient. They know how to handle money.
Mike:They know how to run a budget, and they're basically they're just taken and say, oh, this is a great benefit. I don't need it, but we'll enjoy it and use it for in honor of your work. But the ones who are kind of job to job, there's no savings, they're living paycheck to paycheck, they're kind of fumbling and humming through life, which is waiting for that payout. It would actually, in my opinion, be worse for them to receive the funds than it would be, Because they're more likely to just spend it all and be worse off at the end of it all. So be cautious of gifting to enable bad behavior.
Mike:People don't change overnight, and so you've got to understand that what they're currently doing is going to be magnified with the windfall of assets. So if they're waiting for the paycheck, maybe you're charitable and just gift it to charities and say, you gotta work for your own. That might sound harsh, but I think that's the healthier option for them. Money doesn't solve problems. Money that we receive is a reflection of the service we have offered.
Mike:Money that's been gifted to us is only gonna amplify who we already are. And if we're already bad with money, we're gonna become worse with money. If we're good with money, we'll be better with money.
David:And we've got some notable billionaires who are kinda doing the same thing. Right? They're not giving everything to their their heirs or their kids. Right? They're
Mike:Yeah. But I mean, a lot of these kids, they already know they have the money. They've already wanted for nothing, and their purpose is philanthropic work. So it's like they already have a purpose, and it's a well meaning service. But they grew up with the expectation, so their behavior was congruent with those expectations.
Mike:Mhmm. And they've grown up to be overall pretty reasonable people, even though they might be politically different on both sides of the aisle, even though they might have their different quirks of what they want or what they don't wanna do. You know, everyone's allowed to be philanthropic in their own way, but being frivolous, I don't see that as much when they grew up in that environment. But most of us haven't grown up with billionaire parents. So many people actually, their kids have no idea that they have millions of dollars.
Mike:And so it's a surprise that may catch some people off guard. So just be cognizant that whatever their current behavior is will be magnified for better or for worse. Don't set your kids up for failure. You wanna sum up for success, and maybe you do your safe planning so they get chunks of it at a time. There's a guy I know from the NFL when he was gonna receive the concussion payout.
Mike:He openly admitted he was gonna blow through most of his money at the beginning, and then he'd try and save some of it for more suitable, wiser investments. At least he was smart enough to acknowledge that he was frivolous with money. So that is what it is. But gifting is a very fun thing. It should be a part of every plan, but make sure you're taking care of your needs first before you take care of other people's needs.
Mike:Don't let bleeding heart destroy your retirement, as in you're constantly gifting the kids more than it would be appropriate, and also be smart about parental needs. So a parent might need your help. You wanna be smart about their assets and how they're taking care of their self, your assets. Are they bleeding? It's just these are things that need to be talked about when you're talking about gifting or helping others with your wealth.
Mike:That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcasts. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility.
Mike:This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date, go to ww.yourwealthanalysis.com today to learn more and get started.