Some background: my father is 52.5, makes $80k/yr, and his company offers a standard 6%/3% match (so he contributes 6% of his income to a 401k, and the company an extra 3%). He doesn't believe in saving for retirement (for stubborn reasons), and does not have a 401k. Today, I asked him if I could give him $4800/year for the next 7 years, and in exchange he would sign up for the 401k and take the match. Then when he turns 59.5, I would like him to withdraw the 4800 x 1.5 x 7 = $50,400 and give it to me. He was pleasantly surprised by the idea, and said he'd think about it. In theory, it sounds like a guaranteed 50% return on investment for me (because I am getting all the match money). In practice, I have a lot of questions. I'll list them here:
- If he's making a 6% contribution, that money is tax advantaged. So his take-home income doesn't actually decrease by $4800--we must make the adjustment for the 22% tax bracket. So I could actually pay him just 4800 x (1 - 0.22) = $3744/year and his take-home pay would stay the same. Is this correct?
- If he doesn't stop working at 59.5, can we keep the deal going? Can he withdraw the $50,400 in 2028 and then make additional $7200 withdrawals every year thereafter?
- Is this legal? Would I have to pay taxes on my "investment income"? Can he just give me a $50,400 "gift" in 7 years? Is the IRS going to come knocking?
- I know him and fully expect him to hold up his end of the deal, but don't trust him to properly manage the 401k. Can I manage it for him? Is that legal?
- Are there any other loopholes/hurdles I should be aware of?
Thank you in advance!
Submitted September 05, 2021 at 01:46AM by harrio_porker https://ift.tt/3zLKUDT
