Gift to Grandparent to set up Roth for Grandchild
I know I can gift $ to a Grandparent (67 yo) to set up a Roth with grandchild as beneficiary but can the Roth be funded ( I assume at $6K max per year) if the grandparent has no earned income? (only getting Social Security). How can this be done in this case? 😕
Permalink Submitted by Alan Spross on Mon, 2012-04-09 18:10
There must be earned income to make a regular IRA contribution.
If the grandparent has a traditional IRA, they can convert without earned income. If they did a 6k conversion and put the child on as beneficiary, you could offer to repay 6,000, but the GP would be out the taxes on the conversion.
However, remember that the grandparent could take out the money anytime without you knowing it, and would have to take out the money if they ran out of assets and needed to qualify for Medicaid or pay for LT care. It might be easier to wait until the child is old enough to do household chores, pay the child a reasonable allowance for it and match what you pay to make regular Roth contributions for the child.