Financial Advice Q&A

Visitor
Peg22
Posts: 1
Question
Can I gift Roth IRA contributions to my nieces and nephews?
[ Edited ]

I'd like to give the Christmas gift of retirement saving or general investment (the gift of compounding!!!) to my 5 nieces and nephews (steering clear of college savings). Only one is over 18 and working. What are the rules for setting up a Roth IRA for others? Do they have to be working to have Roth contributions? If so, what counts as "working"? Can something like babysitting count? Should I consider a regular brokerage account instead? Thank you for your help! And Merry Christmas!

Other Answers: 1
Community Manager
ScottHalliwell
Posts: 886

Thanks for the question and Merry Christmas to you too!

 

I LOVE the idea of giving the gift of a Roth IRA –  but I’m afraid you’re probably not going to be able to do it for the children under age 18 (and perhaps only on a limited basis for the oldest).  Here’s why: the children would need to have taxable compensation that they will be claiming on a tax return, and the amount of compensation would need to be at least the amount of the Roth contribution you wish to make.

 

Compensation Defined

In IRS Publication 590, under the heading of “What is Compensation?” the IRS lists the following items as compensation for purposes of an IRA:

  

  • Wages, salaries, etc.
  • Commissions
  • Self-employment income
  • Alimony and separate maintenance
  • Military differential pay
  • Nontaxable combat pay

So, you can probably see why I’m thinking this won’t work for the younger children. 

 

Contribution Limits
As for the oldest, as long as he or she has compensation from one of the categories above, contributions for 2013 are limited to $5,500 ($6,500 if age 50 or older) or 100% of the compensation, whichever is less. This limit is the same for 2014. If he or she has the compensation, you could indeed make the contribution on their behalf. 

 

Other Alternatives 

For the other children who are currently under the age of majority, you may want to consider setting up a Uniform Transfers/Gifts to Minors account. Since these accounts don’t have to be used for college, your concern there wouldn’t be an issue. Finally, while these accounts might work, I really think it would be best for you to speak with one of our Financial Advisors here at USAA about the details of your situation. They can be reached at 800-771-9960. They’ll be able to talk this through with you and help you decide what to do.

 

Thanks again for your question and best wishes to you and your whole family!

 

Scott

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