29 August, 2019
How to Open a Roth IRA for Someone Else
You can open a Roth IRA for anyone who qualifies. If your recipient has time to wait before using the funds, a Roth IRA can be an enormous gift. A contribution to a Roth IRA is easy to make, and Roth IRA assets will never be taxed if the withdrawals are taken after the owner reaches age 59.5.
Make sure your recipient qualifies to contribute to a Roth IRA. To make the maximum contribution, single tax filers must have modified adjusted gross incomes (MAGIs) less than $120,000, and married couples filing jointly must have MAGIs of less than $176,000. If the recipient's MAGI is less than the above but more than $105,000 for singles and $167,000 for marrieds, you can make a partial contribution. The Roth owner must have earned income. Older children with earnings qualify to own a Roth IRA.
Decide how much you'd like to contribute to the recipient's Roth IRA. Your contribution cannot be greater than the recipient's earned income that year. Find out if your recipient is making any IRA contributions himself or if anyone else is contributing on his behalf. If your recipient is younger than age 50, her contributions from all sources must not be more than $5,000 per year. If your recipient is age 50 or above, the contribution limit is $6,000 per year.
Decide where to open the account. You can open the account at a brokerage, bank, or credit union. For accounts $5,000 and smaller, paying commissions to buy and sell individual stocks and bonds may be too expensive. Consider a bank, credit union or discount brokerage. For larger accounts, brokerage houses with advisers who can help with retirement and investment planning may make sense.
Gather the relevant personal information about the Roth IRA recipient. You will need his Social Security number, date of birth, address, approximate income level and general net worth. If the recipient is under age 18, you can serve as custodian for his account, which would give you the ability to sign account documents and make investment decisions. If your recipient is over age 18, he will need to sign a document to open the account.
Some financial institutions will print decorative certificates to announce the gift of a Roth IRA. Consider making a matching contribution, where if the gift recipient contributes a certain amount to the Roth IRA, you will match his deposit.
- Roman Hloba/iStock/Getty Images