Author Topic: Can I use my Dad's IRA?  (Read 1764 times)

Gatzbie

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Can I use my Dad's IRA?
« on: April 06, 2017, 03:56:57 PM »
If my dad isn't using his IRA even though he meets the requirements for one, am I allowed to "gift" him my own money to invest to receive the benefits? Would this be too much of a hassle to do or is it even allowed to be done? I've heard of parents funding their kids IRA's, never the other way around though.

jjcamembert

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Re: Can I use my Dad's IRA?
« Reply #1 on: April 06, 2017, 04:14:14 PM »
You could gift your dad up to $14k (I believe) without paying taxes. He could then put the money in the IRA, but he would get the tax deduction, not you. If it's a Roth IRA you don't get a tax deduction anyway so that could be a way to double your Roth contributions too, assuming he doesn't need the money now.

Midwest

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Re: Can I use my Dad's IRA?
« Reply #2 on: April 06, 2017, 04:19:56 PM »
Might want to look into Medicaid nursing home rules before transferring assets to a parent.

Gatzbie

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Re: Can I use my Dad's IRA?
« Reply #3 on: April 06, 2017, 04:20:48 PM »
You could gift your dad up to $14k (I believe) without paying taxes. He could then put the money in the IRA, but he would get the tax deduction, not you. If it's a Roth IRA you don't get a tax deduction anyway so that could be a way to double your Roth contributions too, assuming he doesn't need the money now.

That would be fine. I could contribute to mine and get the deduction too (I'm assuming). I'm not sure if it would be too much of a hassle getting the money back someday though or how that process would work. I feel that part is where things could get sticky.

Frankies Girl

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Re: Can I use my Dad's IRA?
« Reply #4 on: April 06, 2017, 04:36:21 PM »
You would get zero credit for anything contributed by your father/to your father's accounts.

Regardless of how much cash you could gift in a year (and it is $14K per person as of 2016), that's just if you gift money/items over that amount you need to report it on your taxes so it can apply to your lifetime gift tax/exemptions. Not a huge deal, since the cutoff for the lifetime event horizon is in the millions, but just be aware that gifting $/items does have a limit without technically involving paperwork.

As far as an IRA: he could only put in up to $5,500 per year ($6,500 if you’re age 50 or older), and only if he actually has earned income amounting to the same amount as the contribution. SO if he is retired and only has dividends or living off of other means, then he has no earned income and can't contribute anything.

And no contributions are allowed after the age of 70.5 no matter income or what because they want you taking money out by then.

And he would also be restricted on whether he could take the credit for doing a traditional IRA or possibly have too much income period to contribute to a Roth IRA. Or if he has a work retirement account available (even if he's not contributing, if there is one for him or a spouse, it can effect his ability to take the credit)
https://www.fool.com/retirement/2016/11/05/ira-income-limits-for-2016-and-2017.aspx


But the big deal here is that if you gift him that money, it is for all intents and purposes - it is legally his. Once it's in a IRA, that means if he has a spouse, it is going to automatically go to that spouse unless he names a beneficiary on the account (and they need to have the spouse sign off on naming someone else as beneficiary when married last I checked - some hoops to jump through anyway but not 100% sure any more) and if he doesn't have a spouse, then if he has more than one kid (you) and forgets to name a beneficiary on the account, you might lose it or part of it in the event of his death.

And upon death, IRAs become inherited IRAs and have a bunch of other hoops to jump through (some good but some not so good for non-spouse beneficiaries), that need to be addressed.

To me, that is too many complications just to try to piggyback off his available "bucket" but it depends on how far and how much trouble you're willing to go, and how close you and your dad are and other family dynamics.

Gatzbie

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Re: Can I use my Dad's IRA?
« Reply #5 on: April 06, 2017, 05:00:41 PM »
You would get zero credit for anything contributed by your father/to your father's accounts.

Regardless of how much cash you could gift in a year (and it is $14K per person as of 2016), that's just if you gift money/items over that amount you need to report it on your taxes so it can apply to your lifetime gift tax/exemptions. Not a huge deal, since the cutoff for the lifetime event horizon is in the millions, but just be aware that gifting $/items does have a limit without technically involving paperwork.

As far as an IRA: he could only put in up to $5,500 per year ($6,500 if you’re age 50 or older), and only if he actually has earned income amounting to the same amount as the contribution. SO if he is retired and only has dividends or living off of other means, then he has no earned income and can't contribute anything.

And no contributions are allowed after the age of 70.5 no matter income or what because they want you taking money out by then.

And he would also be restricted on whether he could take the credit for doing a traditional IRA or possibly have too much income period to contribute to a Roth IRA. Or if he has a work retirement account available (even if he's not contributing, if there is one for him or a spouse, it can effect his ability to take the credit)
https://www.fool.com/retirement/2016/11/05/ira-income-limits-for-2016-and-2017.aspx


But the big deal here is that if you gift him that money, it is for all intents and purposes - it is legally his. Once it's in a IRA, that means if he has a spouse, it is going to automatically go to that spouse unless he names a beneficiary on the account (and they need to have the spouse sign off on naming someone else as beneficiary when married last I checked - some hoops to jump through anyway but not 100% sure any more) and if he doesn't have a spouse, then if he has more than one kid (you) and forgets to name a beneficiary on the account, you might lose it or part of it in the event of his death.

And upon death, IRAs become inherited IRAs and have a bunch of other hoops to jump through (some good but some not so good for non-spouse beneficiaries), that need to be addressed.

To me, that is too many complications just to try to piggyback off his available "bucket" but it depends on how far and how much trouble you're willing to go, and how close you and your dad are and other family dynamics.

Thanks for the well-thought out post.  The new 2016 gift tax rules would work in my favor here. He will have the earned income for 9.5 years. I could actually do the $6,500 for both parents per year then because my mom does not work and then $5,500 for mine which I could deduct off my own.  He would meet the AGI requirement to deduct it fully off taxes etc. The two big things would be trust(I have a very good relationship with my family) and the inherited IRA stuff or just gifting it back to me possibly.

Yea, the whole point of this post is to help me judge how complicated this would be and if it would be worth it or not. So far actually, everything looks good (no gift tax, parents taking the deduction, me getting deduction and more tax-benefits), if I were to consider doing something like this.

Update: Then again what if I use a backdoor IRA, etc.  I have no idea if that would cause further complications.  Also, even though I have a good relationship with family, why risk it over tax benefits on a dumb IRA account :p  to be honest. I think I'm not going to attempt this because of that alone. Thanks for the responses, especially you Frankies Girl.
« Last Edit: April 06, 2017, 05:07:54 PM by Gatzbie »