Can I gift my Roth IRA to a grandchild?
Can I gift my entire Roth IRA account to a grandchild and roll all of the tax-free accumulation over to them? Or would I have to physically make qualifying and/or basis withdrawals and set up a new Roth account in my grandchild's name?
You can't just hand over your Roth IRA to a grandchild while you are alive. However, there are a couple of things you can do which might be almost as effective.
You can designate your grandchild as the beneficiary of your Roth IRA. At the time of your death, the assets pass to him/her without triggering any income tax. The grandchild will need to take minimum distributions each year. The required amount will be a function of their age and life expectancy. Presumably, your grandchild will be quite young so the required distributions should be very small. Of course, they need not pay income tax on these withdrawals.
There are some issues to consider. Your grandchild does take control of the money when he reaches the age of majority. That's either 18 or 21, depending on the state. They can buy a boat or rather "stretch" the distributions over their lifetime. This is maybe not a big deal if the IRA is of moderate size. For larger amounts, you might want to name a trust as beneficiary with the intent of regulating your grandchild's access to funds.
You can also fund your grandchild's own Roth IRA while you are alive, to the extent that they have earned income. If the individual has not reached the age of majority, the recipient Roth IRA will have to be a custodial account. Otherwise, they will have to open the Roth IRA themselves to receive your gift. You can withdraw money from your own Roth IRA or use other resources to make gifts to your grandchild up to the amount they are allowed to contribute for a given year. If your 16 year old grandchild earns $2,500, you can gift them that amount and perhaps coordinate with the child's parents to insure that the money makes it into the Roth IRA.
The second part of the question is the answer that you don't want to hear, and even that may not be possible. You have a few choices. Make your grandson your sole beneficiary of the ROTH and upon your death, he can take it out all at once or over time tax-free. I suspect that you are aware of that.
During your lifetime, and provided he has earned income, you could provide him with money to fund a Roth IRA. That would be limited to the tax laws in effect at the time and his overall contributions to retirement plans.
You cannot change ownership of a Roth during your lifetime. Likely not what you want to hear, but I hope that you find it helpful.
No, you can't gift a Roth, but you can put them down as the beneficiary and they can stretch out the distributions over their lifetime. You can't just set up a ROTH in a grandchild's name. The Roth Contribution limit for someone under the age of 50 is $5,500 or 100% or their earned income, whichever is less. Does this grandchild have earned income? If they do, you can gift them the money and they can put it in a ROTH if they wish.
You can't just outright gift your Roth to them, but you have some other viable options.
You can name your grandchild as the beneficiary, which would cause them to inherit the Roth IRA when you pass. Then they would then have the option to stretch mandatory distributions over the course of their life, which could have a substantial tax benefit.
Another option is to simply give your grandchild funds for them to make a Roth contribution in their own Roth IRA. If they have earned income, then they have the ability to contribute up to $5,500; while it's difficult for a young person to work at a summer job (or something like that) and put nearly all of their earnings away, you could give them the funds for the contribution in order to make it more palatable. Also, a Roth can be used for qualified education expenses, which makes this an even more attractive option.
Of course, both of the above approaches may take a measured approach to implement. Please feel free to shoot me a message to get into further details if you like.
Adam Harding CFP
Unfortunately, you cannot gift a Roth IRA account. If your intention is to give your grandchild the account, you can name him as the primary beneficiary in the account, and then he will have the option to stretch out the distributions over his lifetime. To contribute to a Roth IRA account, your grandchild would have to have earned income at least in the amount of the contribution, so assuming the grandchild has earned income of at least $5,500, you could gift that amount to him yearly into a Roth IRA account.