Can I roll over an existing ira to another roth ira for my daughter(age 21)?

Question

I have an existing roth ira with a balance of around $750 that I would like to roll over into a different roth ira for my daughter who is 21 and currently a student with very little income.

Answer 1

My understanding is the 750 is in your name. If that's the case you'd need to cash it out and pay the taxes and penalties. On 750 it won't be much. So do it. Giving your daughter a head start is a good idea and the Roth is just about the best investment vehicle ever.

Answer 2

You can only do it if you cash out and gift the money to your daughter. However, she cannot put it in her Roth unless she has at least that much in income.

If you decide to go ahead, you will have to cash out your IRA. Since it's a Roth, if you've had the account for at least five tax years, you won't have to pay tax on the money. However, if you're younger than 59 1/2, you will probably have to pay a 10% penalty ($75). Then, assuming your daughter already has a Roth and has more income than the amount you want to give her, you can "gift" the money by depositing the money to her Roth.

Assuming 7% return, the $675 will be worth about $10,000 in 40 years (after 40 years of inflation, that's not much.)

One warning: most mutual fund investments require $1000+ as a minimum initial investment in Roth IRAs. Subsequent investments in the same fund can be smaller (often as low as $50).

If you want to get more creative, you might be able to avoid the fee by using the money for your daughter's college expenses. She can take the same amount from her income and deposit it in her Roth. Check out the IRS distribution topic on their web site: http://www.irs.gov/taxtopics/tc558.html

Answer 3

Not really. The only way you can give an IRA to somebody else is after you die.

I know it is important to start saving at a young age, however, $750 probably is not going to make a big difference in her retirement. And if she has very little income, she may one day see that she is hard up for cash and decide to dip into it (without realizing the tax implications of doing so). That kind of ruins the entire purpose of what you are trying to do.