The Foreign Service Journal, December 2014

46 DECEMBER 2014 | THE FOREIGN SERVICE JOURNAL RETIREE VP VOICE | BY LARRY COHEN AFSA NEWS It’s That Gift-Giving Time of Year Again Views and opinions expressed in this column are solely those of the AFSA Retiree VP. Contact: lawrencecohenassociates@hotmail.com or (703) 437-7881 Like most parents and grand- parents, I am concerned about the financial security of my kids. The challenge they face is no secret. A smaller and smaller share of govern- ment budgets goes to the younger generation as spend- ing on the elderly, especially on healthcare, crowds out other expenditures. As Catherine Rampell noted in the Washington Post , an increase in the share of elderly in any jurisdiction cor- relates to a significant reduc- tion in education spending per child. And thanks to the baby boomers, we are seeing more elderly around. Meanwhile, millennials are increasingly saddled with unsustainable student loan debt. Their wages, if they receive any, are often stag- nant. Ever-increasing housing costs may make any kind of home ownership out of reach for many. Pension plans are almost extinct in the private sector. Meanwhile, retirement plans for new federal employ- ees are significantly less generous than the plans we currently enjoy. Without help, our children and grandchil- dren confront steeper climbs than we faced to a comfort- able retirement. I oer a suggestion for parents and grandparents. Take a step back from ordi- nary holiday consumption and make a real investment in their future. In a calen- dar year you can give up to $14,000 to any person and not be subject to the gift tax. My mother recently gifted each of her 10 grandchildren $5,000. But there was a stipulation: the money could be used for either paying down student loan debt and/or placement in an IRA, preferably a Roth IRA. (Note: to be eligible to contribute to an IRA, the person must receive earned income/com- pensation equal to or greater than the amount of the IRA contribution.) Think about it. With a Roth IRA, a child of 25 will accrue four-plus decades of tax-free earnings on the account by the time he or she retires. An investment of $10,000 in year zero yields $217,200 after 40 years at just an 8 percent return rate. Suppose you are about to have a grandchild. Set- ting aside just $1,000 in an investment returning 12 percent—an ambitious target, certainly—would accrue $1.6 million when the child turns 65. Talk about a gift that keeps on giving! If the child has no earned income, consider contribut- ing to his or her 529 Educa- tion Savings Plan. The cost of a college education will no doubt continue its inexorable climb. For those who are reluctant, remember 529 plans have a unique advan- tage. While the value of the account is removed from your taxable estate, you retain full control over the account, including the right to get your money back. As the account owner, you designate the beneficiary— be it a child or grandchild, a niece or nephew, or even yourself!—and you retain complete control over the funds in the account, includ- ing distribution. You can change the benefi- ciary whenever you choose. Once you set up a 529 college savings plan, other family members and friends can also contribute. This is a great way for families to come together to help give the gift of a college education. Remember, 529 funds grow tax free. If the funds are withdrawn before being used for the beneficiary’s educa- tion expenses, they become taxable. Finally, in addition to investing in family members, consider investing in another worthy cause, the AFSA Scholarship Fund. A donation to the fund enables Foreign Service high school students to continue their academic achievement as undergraduates. More information about this can be found at www.afsa.org/ scholar. n REMI NDER : NOMI NAT I ONS FOR D I SSENT AWARDS AFSA proudly recognizes constructive dissent within the systemwith four separate awards. The W. Averell Harriman Award is for entry-level (FS-6 through FS-4) ocers; the William R. Rivkin Award is for mid-level (FS-3 through FS-1) ocers; the Christian A. Herter Award is for Senior Foreign Service ocers; and the F. Allen “Tex” Harris Award is for Foreign Service specialists. Recipients receive prize money and travel expenses to attend and be honored at a ceremony in June in the Benjamin Franklin Diplomatic Reception Room at the State Department. Nominate someone—or yourself!—for one of these awards. The nomination deadline is Feb. 28, 2015. For more details on the awards, and to sub- mit an online nomination, visit www.afsa.org/dis- sent. Please contact Special Awards and Outreach Coordinator Perri Green, at green@afsa.org or (202) 719-9700, for more information. ANNOUNCEMENT