IRA money gifted to parents
I had a questioned about gifted IRAs. My husband and I max out our 401ks and IRAs. My mother works (income about 90,000) while my dad stays at home. They are well off and have a solid retirement. One thing I noticed is they do not contribute to any IRAs.
Since Weve maxed our 401k/IRAs could We gift each $6500 and have them contribute to a Roth IRA under their name? The hope would be to allow them to put us as beneficiaries so in the future the accounts would come back to us. Also we would benefit from no taxed earnings since it would be a Roth.
Any input would be greatly appreciated
Permalink Submitted by Alan - IRA critic on Tue, 2018-01-09 23:48
Yes, as long as their joint modified AGI is not over the Roth contributions phase out range (189k to 199k) they can each make a Roth contribution (spousal contribution for Dad) and name anyone they wish as beneficiary. The gift to them is immaterial, other than helping them to make a contribution using her earned income.
Permalink Submitted by John Brown on Wed, 2018-01-10 00:03
Thanks for the response! I’m an only child so anything we give them to contribute would ultimately come back to my husband and I as an inheritance. From what I have read there seems to be no fees in inheriting a Roth IRA And the benefit would be all the money would be tax free upon withdrawal. The benefit I see here is that my husband and I are in our 30s and parents in 60s so the potential tax free growth seems like a great investment for us. I understand the risk that any money given to them becomes THEIR money, but there are no other people I trust other than them and we have a great relationship. I just want to make sure there aren’t any fees or taxes I’m overlooking whether it be now or in the future
Permalink Submitted by Alan - IRA critic on Wed, 2018-01-10 00:18
Their Roth IRAs do not become qualified and completely tax free until 5 years from their first Roth contributions, so if they did not have Roth IRAs before this, the earnings generated in these Roths will not become tax free until 1/1/23 (1/1/2022 if they make 2017 contributions. If you inherit these Roths, you will have annual RMDs to take as non spousal beneficiaries.