Contributing to Someone Else’s IRA as a Gift or to Charity
1. Why would I want to contribute to an IRA as a gift, and how would I go about doing that?
If you want to help a friend or family member, such as a child or grandchild, who may not be able to save for retirement, then you can gift to that person the amount needed so that he or she can contribute to an IRA each year. The friend or family member can contribute to an IRA each year as long as he or she has earned income at least equal to the gifted amount. For example, you could make a gift/contribution for a teenager with summer employment, a college student working part-time, a young adult just entering the full-time workforce who is trying to pay off student loans, or more established adults who are employed but have not been able to adequately save for their retirement.
Under the federal gift rules, you can gift up to $13,000 in 2011 to any person without reporting the gift amount to the Internal Revenue Service, but the IRA contribution rules limit you to $5,000 per person ($6,000 if age 50 or over).
This IRA gift provides you with a way to teach the individual about investing and to discuss their comfort level with dealing with market fluctuations and the merits of diversifying the IRA investment portfolio in different asset classes, such as stocks, bonds and real estate. This educational process is especially important if this person will eventually serve as your agent under a Durable Power of Attorney, or if this person will inherit a larger, more substantial amount, upon your death.
As an added bonus, the Traditional IRA and Roth IRA have broad creditor protection under federal and most state laws, which can be beneficial to a younger loved one who has professional liability concerns, a bad marriage or other creditor issues.
Best of all, you can open a low-cost1 TIAA-CREF Traditional IRA or Roth IRA product for a family member, which then qualifies the family member to receive our advice services at no additional cost.
2. I heard that Congress recently extended the IRA Charitable Rule. Can you give me a quick summary about it?
Yes, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 renews a temporary provision for 2010 and 2011 that allows donors who are age 70½ or older to make a direct, tax-free rollover of up to $100,000 from a Traditional or Roth IRA to a qualified charitable organization (i.e., any public charity or private operating foundation). The types of charitable organizations that are not eligible include donor advised funds and supporting organizations.
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1The expense ratio on all mutual fund products and variable annuity accounts managed by TIAA-CREF is generally less than half the mutual fund industry average. Source: Morningstar Direct (December 2010), based on Morningstar expense comparisons by category.
The tax information contained herein is not intended to be used and cannot be used by any taxpayer for the purposes of avoiding tax penalties. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products. Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association (TIAA) and College Retirement Equities Fund (CREF), New York, NY.
Investment products, insurance and annuity products: are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value.