Terry, can a parent put away money for an adult child via an ira or Roth ira directly or do the parents have to give them the money to invest? We are interested in helping our kids but are unsure of what options are open to us legally. What about for a grandchild?
SAVAGE SAYS: I’m going to give you two different answers. First, regarding the IRA, the basic issue is whether they are eligible for a deductible IRA, or a non-deductible IRA (if they are covered by a company retirement plan) or a ROTH IRA (which depends on their income level. Here’s a link to those determinants: http://www.investopedia.com/university/retirementplans/ira/ira1.asp
If your adult child is eligible, but not contributing because of lack of funds or just not concerned about saving for retirement, you can give him or her the money each year. But since an IRA is an INDIVIDUAL retirement account, he or she would have to open his own account — perhaps at Fidelity or Vanguard — and make the investment. Then it will be reported on his/her tax return, especially if taking a deduction for the contribution. (Remember, a non-working spouse can also open an IRA without income, if his/her spouse has earned income.)
To answer your second question, for a grandchild, I would suggest opening a 529 College Savings Plan account in your names with the grandchild as the beneficiary. That way you have control over the money, which ultimately can be used for any college in any state, or by any of your grandchildren. The money grow tax-free if used for college. You can gift up to 5 years of the annual (current) $14,000 tax-free gift –and twice that amount if you and your spouse each make a gift) to open the account. Or you can start the account with a much smaller amount, and add to it for birthdays, holidays, etc. My suggestion would be to start with an account at Vanguard, using their 529 plan that is invested automatically based on the child’s age. Here’s a link: https://personal.vanguard.com/us/whatweoffer/college/vanguard529