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IRA as gift to adult children
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May 8, 2000: 4:00 p.m. ET
A secret savings account can be a real treat for busy, newly minted 'adults'
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NEW YORK (CNNfn) - You'd like to set up a secret Roth IRA as a gift to your adult children. The account would begin to grow, and after a certain number of years, you could spring it on them, as a great long-term savings plan that they didn't even know that they had. Sounds great, but is it possible?
In response to a reader's question, Elissa Buie, a certified financial planner from Falls Church, Va., and a member of the financial planning association, discussed the potential merits and challenges of such an endeavor.
Ask the experts a question
We would like to take out $2000 Roth IRAs for our two children who are both in their early twenties. We want to do this investment on a one-time basis and just let it ride. Is there any way of doing Roth IRAs for them and still keep it a secret from them until they get older? Should we create a trust first? Our son is 26 and single and our daughter is 21 and just got married. We were wondering about how to handle the beneficiary issue. Can we control the investment funds without them knowing? Will the Roths still be tax-free for them no matter how much the account builds up to in approximately 34 to 39 years? With a little luck, it could be a multimillion dollar total by then.
Because your children are adults and the Roth would be in their names, they would need to know about the accounts and they would have control over the investment of the funds. They would also have to select the beneficiaries. You could do Roth's in your name(s) with them as beneficiaries, but they wouldn't have access to the funds until after your death.
The tax benefits do not change no matter what the value of the account does.
You will want to be sure that your children qualify for a Roth IRA. The qualification rules are:
- The contribution cannot exceed 100 percent of [your child's] compensation, up to $2,000. (A spousal Roth would also be available for another $2,000).
- The maximum contribution is coordinated with regular IRA's to the $2,000 total.
- The income limits are as follows: (a) A single individual with AGI under $95,000 (reduced contributions available up to $110,000); (b) A married individual filing a joint return with AGI under $150,000 (reduced contributions available up to $160,000); and (c) A reduced contribution is available for a married individual filing a separate return with AGI between $0 and $10,000.
If all of these rules leave you interested in making this investment, your children should be very thankful to you. A $2,000 investment could grow to be worth over $55,000 if invested for 35 years at 10 percent. And no taxes would ever be due on this account. 
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