Parental contribution to 21-year-old’s Roth IRA
I can find no IRC section that weighs in on the source of cash to fund IRA contributions. We have clients (MFJ) with a 21-year-old daughter for whom they want to help establish and fund a Roth IRA for 2024. She had W-2 income of $9,500 in 2024 and no employer retirement plan. From an earned income standpoint, she’s eligible to contribute the maximum for 2024.
But does it matter from which account the contributions come? Can the Roth IRA be directly funded with cash from one of the parents’ bank or brokerage accounts? One of our employees is under the impression that parents cannot directly fund a Roth IRA unless it’s a custodial Roth IRA. She believes the actual transfer in must come from an account titled in the 21-year-old’s name.
Permalink Submitted by Alan - IRA critic on Fri, 2025-03-07 16:54
It can be funded by a check from the parents, although it might be easier for the parents to make out a check to daughter and then have the daughter write the contribution check.
Permalink Submitted by Matthew Eckman on Fri, 2025-03-07 17:24
Would it be any concern if it were funded with an electronic funds transfer from either the parents’ bank account or a brokerage account at the same custodian?
The ultimate concern in the tax code seems to be focused on the amount an account owner is eligible to contribute, not the source of the funds. We’ve not received any pushback from the custodians in the past when parents fund kids’ IRAs when those kids are above the age of majority. And I’m assuming your qualification of having the funds traverse two accounts (i.e., from the parents’ account to the daughter’s account, then to the daughter’s IRA) before the contribution as being “easier” is that it’s “cleaner” in terms of the contribution source account, should it ever be scrutinized
Permalink Submitted by Alan - IRA critic on Fri, 2025-03-07 18:41
No, by being “easier” I meant that it would eliminate an uninformed custodian from not opening the account or accepting the contribution. The IRS does not care where the money comes from as long as the account owner has earned income to qualify for the contribution. Contribution limits are also less than the annual gift tax exclusion.