Gifting IRA’S for adult children
I would like to set up accounts for each of my two children to help them with their retirements (unthinkable to them at age 25). Any suggestions? Thank you!
Terry Says
Great idea -- BUT, in order to set up a tax-deferred IRA (or a tax-free Roth IRA) they have to have "earned income." That is income reported on a tax return. It doesn't matter if the account is opened with money they have earned, or with a gift from you. Each could contribute a maximum of $5,000 a year to an IRA -- if they earn that much. So here are my suggestions on how to do it, assuming they have the income. Open a Roth IRA (A Roth IRA is "after-tax"; they don't get a deduction -- but probably don't need one --- and all the money will grow to be withdrawn tax-free at retirement). If they have income, get started by contacting either Vanguard or Fidelity, and opening the IRA in their S&P 500 Stock Index Fund. You'll need their Social Security numbers and addresses, and birthdate to open an account. Each will have a separate account. Once each account is opened, show them the forms to sign up for an automatic monthly contribution from each of their checking accounts -- perhaps $100 a month to start. Give them an incentive to do that. Tell them that at the end of next year, and every year, you will contribute a matching amount! (Keep in mind that the maximum annual contribution is $5,000 -- assuming they earn that much. So the most you could be on the hook for is $2500 each! Once they see the money growing, they will develop enough pride to make their own full contributions. You will have given them a gift, an incentive, and a future! Great combo!
