How can I make sure gifts I give my kids go to an IRA?


Q. I’m giving my children each some money to save for the future. Can I just open IRAs for them or do I have to give them the money and hope they don’t just spend the money now? I’m not really worried about two of them but the other two aren’t good savers.
— Parent of four

A. It’s great that you want to help your children save for the future.

But before going over the income tax aspects of your question, let’s first address gift tax.

For 2024, you can make annual gifts to any of your children of up to $18,000 without having to file a gift tax return, said Neil Becourtney, a certified public accountant and tax director with Smolin, Lupin & Co. in Red Bank.

If you are married, your spouse can do the same, effectively allowing for annual gifting to each child of up to $36,000, he said.

But if your gifts exceed these thresholds, then a gift tax return (Form 709) would be required to be filed, he said.

If your planned gifts will be limited to the amount needed to fund IRA contributions, then gift tax will not be an issue, Becourtney said.

You are concerned about your children putting money aside for their future retirement years.

“In order to make an IRA contribution, the account holder needs to have earned income equal to or greater than the IRA contribution being made, whether it is a traditional deductible IRA, a non-deductible IRA or a Roth IRA,” Becourtney said. “Besides wages, any net earnings from self-employment would qualify.”

If for argument’s sake one of your children is in college and did not generate any earned income, an IRA contribution would be prohibited, he said.

For 2024, the IRA contribution limit for an individual under age 50 has increased to $7,000.

“You should not be opening IRAs for your children, plus it is likely that most IRA custodians would not permit this as generally only the account holder can make an IRA contribution for themselves,” he said. “An exception to this rule is a spousal IRA where a spouse can make an IRA contribution on behalf of their spouse.”

Your children can make IRA contributions for the 2023 tax year up until April 15, 2024, he said.

One suggestion is that you offer to reimburse them for making an IRA contribution, he said.

“Upon a child providing documentation of having made an IRA contribution you would then make a gift to them of the amount contributed,” he said. “This will achieve the forced savings that you are concerned about and eliminate the possibility of you making gifts up front and the money not being used to make IRA contributions.”

But don’t forget that their tax situations, such as whether they are participants in an employer-provided retirement plan, will determine the tax treatment for them, Becourtney said.

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This story was originally published in February 2024. 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.