02 Sep Can I save to IRAs owned by my adult children?

Q. My adult children have Roth IRAs to which I am linked as unauthorized user. Is there a problem with me making direct deposits to their Roth IRA accounts, and if not, is there an annual maximum I can deposit? My wife and I are retired with pension income.
— Caring dad

A. It’s very generous of you to want to help your children save for retirement.

While there are no explicit restrictions about you as a parent contributing to your child’s Roth IRA, being an unauthorized user may slightly complicate the mechanics of actually doing so.

Let’s start at the beginning.

A taxpayer may contribute annually to an IRA for 2021 the lesser of $6,000 — $7,000 if over the age of 50 — or their earned income for the year, said J. David Principe, a certified financial planner with SAGEbroadview Wealth Management in Morristown.

He said the taxpayer must also be eligible to make Roth contributions for the year, meaning their modified adjusted gross income (MAGI) must be below certain thresholds. For single taxpayers, MAGI must be less than $140,000 and those who are married and filing jointly taxpayers must have MAGI of less than $208,000, he said.

Contributions must be made no later than April 15 of the following year, he said.

“As an unauthorized user, it seems unlikely that you will have the ability to make a direct deposit to your children’s Roth IRA accounts,”Principe said. “However, there are numerous less-direct methods available.”

He said you could send a check directly to the financial institution and it would deposit the funds into your child’s IRA. You should review the custodian’s instructions for how to prepare the check and where to mail it.

You could also securely deposit funds through the custodian’s mobile deposit tool, he said.

Another option is to give the money outright to your children, and they could make the IRA deposit themselves.

It’s important to note that you can gift $15,000 per year per recipient, or $30,000 if it’s a joint gift with your spouse, without having to file a gift tax return, he said.

You should be aware of this rule if you intend on making other gifts to your children for the same tax year beyond contributing to their Roth IRA.

However you proceed, make sure your children are eligible for the contribution and that they weren’t planning their own contributions, which could inadvertently put them over the annual contribution limit.

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This story was originally published on Sept. 2, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.