Suppose that (1) a parent contributes to an IRA for a minor child, who has income from employment, or (2) a parent contributes to an IRA for an adult child, who has income from employment. Are the contributions present interest gifts for annual gift tax exclusion purposes?

My thoughts are that the gifted IRA contributions ARE present interest gifts in either case, whether to a traditional IRA or to a Roth IRA because IRA contributions can be withdrawn. The minor child cannot withdraw the contribution until he becomes of age, but the parent, as custodian for the child, can withdraw the contribution at any time, if it is to be used for the benefit of the child. The adult child can withdraw such contribution, without any strings by the parent, IRA custodian (trustee) or any other entity. Cf. an irrevocable life insurance trust, where distributions generally cannot be made until the death of the grantor, necessitating the use of Crummey powers to make contributions to the trust present interest gifts.

The 10% penalty for pre-age 59 1/2 distributions is not a legal bar to such withdrawals and does have exceptions. The ordering rule for Roth IRA distributions is that contibutions are withdrawn first, i.e. before earnings, and are subject to neither the regular income tax not the penalty, so one can avoid the penalty in the case of a Roth IRA by only withdrawing the amount of the contribution.