Gifts to grandkids

racqueteer

This may be shocking, but I don't claim to know everything. I'm looking for ideas, advice, etc. I want to start contributing to my grandkids' education, etc. each year. I have three in elementary school, and two others out on their own. The needs there are obviously different. Something that minimizes/eliminates tax concerns for them, obviously. I've heard bits and pieces here and there, but I don't believe I've ever seen a thread focussing on that particular goal. If I am duplicating a previous discussion, my apologies. We have some sharp folks here; so why not harness all that brainpower for good?!

Sven

We have had the same question being asked earlier. 529 plan was one of the proposed solution. Please see the thread below.
mutualfundobserver.com/discuss/discussion/comment/203937/#Comment_203937

yogibearbull

Sven's link somehow goes back to the OP.
Here is the URL https://www.mutualfundobserver.com/discuss/discussion/65167/any-suggestions-for-investing-for-a-new-great-granddaughter

catch22

I suggest you move this to 'Other Investing' for the topic area. You post will have much more exposure.

For the others out on their own..........if they have taxable income; they may establish a Roth IRA. You may contribute to that Roth. This method allows them to maintain their NET income, and yet, start building the Roth investment. We've used this method.
I fully support the 529 education account, too.

--- Yes, you can contribute to someone else's Roth IRA as a gift, but the account holder must have earned income for that tax year and must not exceed the IRS income limits for contributions.

Key Rules for Gifting Roth IRA Contributions
Earned Income Requirement: The individual whose Roth IRA you are contributing to (the recipient) must have taxable earned income (such as wages, salary, or self-employment earnings) at least equal to the amount contributed for the year. Non-earned income like gifts, allowances, or investment income does not count.
Contribution Limits: The total contributions from all sources (you, the recipient, etc.) cannot exceed the IRS annual limit for that person.
For 2025, the limit is $7,000 for individuals under age 50, and $8,000 if age 50 or older.
The total contribution also cannot exceed the recipient's total earned income for the year.
Income Phase-Outs: The recipient's Modified Adjusted Gross Income (MAGI) must be within the IRS limits to be eligible for direct Roth IRA contributions. If their income is too high, they may be ineligible to receive the contribution.
Gift Tax Exclusion: Your contribution is considered a gift to the account holder. However, the annual gift tax exclusion amount is typically much higher than the IRA contribution limit, so you usually won't need to worry about gift tax implications. For 2025, the annual gift tax exclusion is $19,000 per recipient.
Special Cases
Spouses: A spousal IRA allows a working spouse to contribute to a Roth IRA for a non-working spouse, provided they file a joint tax return and their combined income is sufficient to cover the contributions.
Minors: For a minor child, you can open a custodial Roth IRA where an adult manages the account until the child reaches the age of majority (typically 18 or 21, depending on the state). The minor must still have earned income from a job or self-employment for contributions to be made.
Adult Children/Parents: You cannot open a Roth IRA for another adult, but you can give them money (via check or electronic transfer) for them to deposit into their existing account.
Before making a contribution, it's a good idea to confirm the process with the account holder's financial institution, as some may have specific procedures for third-party contributions. You can also consult the IRS website for current rules and limits.
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Observant1

@racqueteer,

I don't have any specific advice regarding this particular topic.
As catch22 suggested, you may want to move this thread to "Other Investing" for increased exposure.

racqueteer

Is there a process for moving a thread, or would I simply create a new instance of it?