Afford Anything Podcast: Episode Summary

Episode: Q&A: Can You Open an IRA for Someone Else's Kid? (And Should You?)
Date: August 26, 2025
Host: Paula Pant
Co-host: Joe Saul-Sehy
Network: Cumulus Podcast Network

Episode Overview

In this Q&A episode, Paula Pant and Joe Saul-Sehy tackle listener questions on a range of personal finance topics, focusing on how financial decisions shape our lives, families, and futures. The main theme explores the nuances of financial gift-giving to nieces and nephews (with specific attention to IRAs vs. 529s), safeguarding savings from inflation with TIPS, and the tax implications of relocating for retirement—both within the US and abroad.

The episode emphasizes practical financial strategies, first principles thinking, and the human side of money, including family, lifestyle, and happiness.

Key Discussion Points & Insights

1. Gifting Investments to Nieces and Nephews: IRA, 529, or Brokerage?

[03:27–19:26]

Listener Question from Nick (03:27):
Nick wants to know the best way to invest on behalf of his nephew (whose parents already opened a 529), considering options like IRAs or brokerage accounts.

Main Takeaways:

• 529 Plan is Best for Education Purposes:

  • Paula recommends opening a 529 and naming the nephew as beneficiary, emphasizing its flexibility for various types of education (04:04).
  • “As long as they have a US Social Security number, you can name them as the beneficiary of that plan.” – Paula Pant [04:11]
  • Joe notes that you can contribute to a 529 already established by the parents, or open your own for further control or visibility (05:14–07:13).

• IRA Not Viable (Unless Earned Income):

  • IRAs for children only work if the child has earned income (kid actors, influencers, etc.). This is rare and doesn’t apply to most nieces/nephews.

• Brokerage Account Pros & Cons:

  • Joe cautions against brokerage accounts in the child’s name because it affects financial aid calculations (Expected Family Contribution on FAFSA), potentially hurting access to need-based aid (07:13–11:53).
  • Alternative: Keep the account in your own name, name the nephew as beneficiary, and gift assets when he’s of age for more control and simpler logistics.

• UTMA/UGMA Accounts:

  • Joe explores the history and regulatory reasons for UTMA/UGMA accounts—designed to prevent tax shelter abuses by parents (11:53–14:19).
  • All money in these accounts must benefit the child; can’t be hijacked for unrelated expenses.

• Creative Non-Standard Option: Rental Property

  • Paula’s unconventional solution: buy a rental property with a 15-year mortgage, so it’s paid for by the time the child comes of age, creating an asset and potential teaching opportunity (14:40–17:31).
  • “If Junior has a hand in helping manage it... they are learning how to manage an asset that creates an income stream.” – Paula Pant [16:53]

• Education is Key

  • Joe and Paula stress involving the child in investment tracking and decision-making as a valuable lifelong lesson.

Memorable Quote:
“The one thing I would be wary of would be opening a brokerage account in your nephew’s name... you’re going against any dollar that your nephew may have gotten for need-based financial aid.” – Joe Saul-Sehy [09:01]

2. Do You Need TIPS to Protect Against Inflation?

[23:02–33:55]

Listener Question from Diana (23:02):
Is it necessary to include TIPS (Treasury Inflation-Protected Securities) or a TIPS ETF in a retirement portfolio, and what are the tax implications?

Main Takeaways:

• TIPS for Short-Term Goals Only:

  • Paula: “No, you do not need TIPS in your portfolio and you do not need a TIPS ETF, except... if you have money that you intend to use in the next three to five years.” [23:57]
  • For long-term goals (5+ years): Stick to equities, which historically outpace inflation.

• Invest in What Drives Inflation:

  • Joe explains the concept: “Invest in the things that are causing the inflation. If you do those, you will beat inflation.” [25:20]
  • Index funds naturally capture these companies as the economy evolves.

• Hierarchy of Accounts for Bond Funds:

  • Paula recommends holding bond/TIPS funds in pre-tax accounts (IRAs/401ks) to avoid tax inefficiency; only use taxable accounts if you’ll need the money soon (29:54–31:18).

• TIPS ETF vs. TreasuryDirect:

  • Paula advocates buying TIPS directly via TreasuryDirect.gov to avoid unnecessary ETF fees (29:15).
  • Joe: “I think by buying a TIPS ETF, you’re getting nothing.” [29:43]

• Don’t Over-optimize Small Amounts:

  • Time and effort spent optimizing small, short-term purchases (like saving for a $2,000 trip) isn’t worth it for most people (33:41).

Memorable Quote:
“Index funds are self-cleaning, they are self-managing. All you have to do is decide what your asset allocation is.” – Paula Pant [26:11]

3. Retiring in a Different State or Abroad: State Taxes and Account Choices

[38:08–55:59]

Listener Question from Prithvi (38:08):
Should pre-tax (Traditional) or Roth accounts be prioritized if you plan to move to a zero-tax state or abroad for retirement? How do state taxes work if you relocate after accumulating savings?

Main Takeaways:

• State Income Tax Landscape:

  • There are seven states with no state income tax, two in transition (New Hampshire, Washington), and each has differing implications for retirees (39:42–40:55).

• Property and Other Taxes Matter:

  • Joe points out that low/no income-tax states often have higher property or other taxes – “There’s no such thing as a free lunch.” [41:29]

• State of Domicile and Moving Abroad:

  • Before moving abroad, you can “pick” a state with no income tax as your US domicile to potentially escape state taxation (41:34–42:47).

• Key Non-Financial Factors:

  • Paula and Joe stress not letting taxes override other critical elements—estate planning complications, property laws, and especially community and happiness. “You never want to let the tax tail wag the life dog.” – Paula Pant [48:13]

• Roth vs. Traditional Accounts:

  • Both lean toward Roth for ongoing flexibility, as it alleviates concerns over unpredictable future tax law and allows you to live anywhere—high or low tax state.
  • “I’m so in love with the flexibility the Roth gives me later on.” – Joe Saul-Sehy [51:18]
  • “We don’t know what federal tax rates are going to be at the time that he retires... by putting money in a Roth account today, we protect ourselves...” – Paula Pant [52:37]

• Federal Tax Law is Not “Permanent”:

  • Joe (via “OG”): “Whenever you get in a case where you think that tax law, no matter what you hear out of Washington, that it’s, quote, permanent—good luck with that.” [53:52]

• Potential for Double Taxation Abroad:

  • The US taxes citizens’ income globally. Expats could also face taxes in their new country of residence—individual circumstances will vary and require professional advice (55:08).

Memorable Quote:
“We do not know what type of tax laws are going to get put in place. So why not have the certainty of knowing that this money, no matter what happens to the tax law in the future, this money is protected from getting taxed.” – Paula Pant [54:24]

Notable Quotes & Memorable Moments

• “I love just hearing the science going on in Paula’s head as it occurs. Wait. Oh, oh. That's why they call it stainless steel.” – Joe Saul-Sehy [03:05]
• “Rule of 72... If I can just cobble together a hundred dollars today and I don’t touch it till I’m 65... I could be wealthy in my 60s? Yes, that excites the heck out of them.” – Joe Saul-Sehy [18:19]

Important Timestamps

• Gifting Investments to Kids: [03:27—19:26]
• 529 vs. IRA vs. Brokerage Details: [04:04—12:33]
• Rental Property Approach: [14:40—17:31]
• TIPS and Inflation-Protected Investing: [23:02—33:55]
• Asset Location Cheat Sheet Mentioned: [29:54, 31:18]
• Roth vs. Traditional Retirement Accounts by Tax Residence: [38:08—55:59]
• Community & Lifestyle vs. Tax Optimization: [45:07—50:48]
• Future Federal Tax Law Uncertainty: [53:31–54:07]

Summary Table: Financial Tools Discussed

| Tool | Best Use | Key Considerations | |----------------------|------------------------------------------------|--------------------------------------------------------| | 529 College Plan | K-12 and college/trade school expenses | Anyone can contribute; beneficiary must have SSN | | IRA (Custodial) | Retirement/long-term if child earns income | Must be from child’s earned income | | Brokerage Account | Flexible, non-education gifts | Consider financial aid impact; control via beneficiary | | UTMA/UGMA | Irrevocable gifts to minors | Strict use rules; impacts financial aid | | Rental Property | Long-term wealth building and education | Requires active management and planning | | TIPS (direct) | Short-term inflation-protected savings | Use TreasuryDirect; avoid ETF unless unavoidable |

Conclusion & Call to Action

The episode reinforces the importance of thoughtful, individualized decision-making in personal finance. Taxes and accounts matter, but so do your goals, your relationships, and the life you want to live. Roth accounts offer maximum future flexibility; 529s remain optimal for education gifting; and sometimes the best financial move is the one that aligns with your values, not just tax efficiency.

Paula’s Challenge:
“Think about what your threshold is for whether or not it’s worth your time to inflation protect a certain bucket of savings.” [33:55]

Connect:

• AffordAnything.com/escape – Free book
• StackingBenjamins.com/HSA – Joe’s webinar on HSAs
• Asset Location Cheat Sheet: affordanything.com/assetlocation

Next Episode: Planning your state of residence for maximum tax optimization in retirement.

This summary covers all critical topics and insights, preserving the hosts’ insightful and engaging tone. If you missed the episode, you’re now ready to take action—or bring a smart money gift to the next family gathering.