Any Financial/Tax People Here?

[shanez]

I want to set up a Roth IRA for my daughter who is 10 months old.

She obviously has no income. I know I can gift her the maximum annual limit and stay under the federal gift limit for taxes but will she then have to pay income tax on it?

If so wouldn't she be entitled to a full refund anyway?

 

[tokerpipes]

Best to talk to your bank they can set up an ira easily. I think the taxes would be based on interest, but they would know the answer better.

 

[3rdguy]

Good question. If it is funded with a gift....I would make the call to a CPA.

 

[adui]

I used to be a licenced enrolled Agent. My information however is from memory. I have not studied in some time.

That said, a Roth is funded with after tax dollars. This means the tax is already paid. Assuming you can gift this to her, she shouldn't have to pay taxes on any of it. If later in life she adds funds then they to would be from money the tax had already been paid on by her. So when she retires, assuming no laws pertaining to Roth IRAs changes. There would be no tax on the qualifying withdrawals.

Bottom line find a CPA, or an enrolled Agent and discuss it with them before pulling the trigger

 

[curl]

Can a trust own an IRA?

 

[hoosierpipeguy]

One would think there would be no taxes if it is going into a Roth. I would definitely check with your accountant for financial adviser though.

 

[cshubhra]

Definitely talk to your CPA. Roth IRAs are funded with post tax money and the money grows tax free. However there may be complications since you are funding your daughter’s Roth IRA with your money. In general if you have paid taxes, then she should not have to, but I am not qualified (or knowledgeable) to tell you that

Have you considered the following? Please do talk to your CPA

1. A Roth IRA in your own name - You have the ability to name your daughter as beneficiary in your will, and any distribution you take for her education is qualified and not taxed
2. 529 Plans - I have mixed feelings about it, but a right 529 is a very good savings vehicle for your daughter’s education
3. A Roth IRA belonging to your wife, but funded by you.

Between the three investment vehicles I mentioned above, you should be able to save around 28K every year as long as your total income is less than 200K (ball park)

Guiding you as a friend, but please talk to a CPA to understand the details

 

[AlabamaDan]

As everyone says, talk to your CPA. However, I think your question is related to you giving funds in excess of the annual gifting exemption, which used to be $10,000. It may have gone up. My understanding is that if you gift funds in excess of that exemption amount it counts toward your lifetime exemption amount. I don't think it triggers anyone paying taxes unless you've also exceeded that. I think that's like $1MM. Talk to a CPA for specific facts.

 

[adui]

As everyone says, talk to your CPA. However, I think your question is related to you giving funds in excess of the annual gifting exemption, which used to be $10,000. It may have gone up. My understanding is that if you gift funds in excess of that exemption amount it counts toward your lifetime exemption amount. I don't think it triggers anyone paying taxes unless you've also exceeded that. I think that's like $1MM. Talk to a CPA for specific facts.

In addition to what he said, a common misconception is the gift recipient pays any gift tax. The truth is, IF you used up your lifetime exclusion and a gift tax was owed on a gift you give, YOU would be responsible for paying it, not the gift recipient.

 

[AlabamaDan]

In addition to what he said, a common misconception is the gift recipient pays any gift tax. The truth is, IF you used up your lifetime exclusion and a gift tax was owed on a gift you give, YOU would be responsible for paying it, not the gift recipient.

Agreed.

 

[AlabamaDan]

I've always wondered how the IRS would know...

 

[adui]

I've always wondered how the IRS would know...

Generally speaking if you gift someone capital property, or money in excess of the annual exclusion there is SOME form of banking record.

Big Brother is watching.

 

[shanez]

So after doing some research I've determined I can't gift her the money for an IRA. In order to have a Roth IRA a person has to have income and a gift does not count.

Because I live in a state that requires I file my taxes jointly since I itemize my return, it pushes my AGI over the limit for my wife or I to have a Roth IRA and I can't leave what I can't have to my daughter.

She already has a 529 account but this only allows for educational expenses so I need something in addition to it.

My research is pushing me in a two directions simultaneously now.

First, I'm going to create a new company and add her as an owner. She'll have to pay some income taxes but the company likely won't be profitable enough for her to not receive a full return anyway. As soon as she receives some income she can then have the Roth IRA. Unfortunately this is probably going to take me a few months to complete everything properly and legally so she'll miss the first year of investment.

Second, since the annual Roth IRA contribution limit is well below the annual gift limit anyway I'll have to invest traditionally for her and just pay taxes on what is earned. She will already take control of a couple of properties through my trust so I'll just diversify with various stocks, etc.

I've set up a meeting with our company CPA to help me keep everything above board and we've got a new company attorney that is not charging me for a few phone conversations to help me out.

Can a trust own an IRA?

I don't see the need for this. For most people the main purpose of a trust is to avoid probate but since an IRA is a contractual agreement to begin with it avoids probate by default. There could be a few states where this is not the case but that is my understanding of it and it is the case in the state I live in.

 

[jpmcwjr]

Last heard- a year ago- the gift exemption was $14,000.

 

[cshubhra]

You can also ask your CPA if you can do this - Create a LLC and move your ownership stake in your businesses to the LLC which you own. The distributions from your business is channelized to the LLC, and remains in the books of the LLC. As long as the distributions you take from the LLC is below the income limit, you can still fund an IRA

I don’t know if this is possible, but definitely worth a discussion with your CPA

 

[adui]

Last heard- a year ago- the gift exemption was $14,000.

Per year, with a lifetime exclusion amount.

In 2019 one could gift up to $15,000 (annual exclusion) and the lifetime amount is 11.4 million. For the uninitiated, you CAN, (or could in 2016), dip into that lifetime amount over the 15,000 annual but the forms are somewhat complicated. (Did this for a tax client a few years ago, AFTER reviewing it with a CPA colleague because gift tax wasn't my specialty.)

 

[curl]

I asked the trust question because I figure some people would not give their minor children decision-making authority regarding valuable assets. The trust might be set up to distribute income to the child while retaining the income producing asset in the trust. Heck, a lot of people wouldn’t give their adult children decision-making authority over valuable property.

 

[Jshogan2]

IRAs require the owner of the account to have income. 529s, Coverdell ESAs, & UGMA are more likely the solution you are looking for, and all have trade-offs. Definitely reach out to at least a CPA if not a CFP.

 

[AlabamaDan]

Can a trust own an IRA?

a trust can be the beneficiary of an IRA i think

 

[Spinkle]

I am in Canada so I can't help with the specific question as my knowledge is all related to the Canadian system. However, as someone who deals with these types of issues every day, my first piece of advice would be never to rely on advice from any individual or group of non-professionals as this often leads to major problems down the road with the respective revenue authority.

One of the most important things to be aware of is that tax and financial planning is always dependent upon the facts. Every subtle nuance in a given fact pattern can have strategy altering consequences. First thing to do is to drill down on the facts and then apply the law.

My advice would be to find an experienced attorney who practices tax law in your state or a CPA (I'm not sure which would be appropriate for you as I'm not familiar with the US system as above), set up a consultation with them and pay them for their time. This is the best way to ensure that you don't run into issues; an experienced professional will spend the time to drill down on the facts, your goals and start working on a strategy for you.

Please do not take my post as in any way disparaging any of the other posters in this thread that is not my intent with this post. Good advice is good advice, but there are other factors that should be considered, such as if things go wrong, a professional who has billed for their time will have access to insurance to indemnify the client etc.