"Helping" to contribute to your parents Roth.

[Guest sylvee]

I have been contributing to both my mom and dad's ROTH accounts since 2001. They in turn have me as the primary beneficiery. I don't know if that crosses a fine line in ethics etc. But it is sure nice to be moving around in stocks with no tax consequences. We have just a verbal agreement to send me a withdrawl when/if I want after 2006. ( The 5 year waiting period) I do have a brother and sister so my dad was concerned with potential conflicts with probate/withdrawls and so on.

I know it is probably late to ask if anyone knows if this is potentially a big headache. I have looked at this in different situations, and the only problem I see is mom and dad decide to "forget" about me. lol

Basically I saw this message board and was wondering if anyone else is doing this or was thinking of it.

[John G]

You are allowed to make "gifts" to your parents. If you parents have "earned income", they are entitled to contribute to Roths. It is completely in your parents discretion as to who they should name as beneficiaries of their Roth accounts. They can also change who are the beneficiaries at any time. They can also remove the funds and spend them.

Some folks have given a "gift" to cover the taxes so a parent would undertake a

conversion while their income and tax bracket is lower tax rate.

Many adults fund their children's Roths because it is an excellant vehicle to begin a investment program for teenagers. So, as so as the youths have earned income, the parents fund or match funds for Roths.

All of these arrangements have elements of risk and can be subject to change of mind by the Roth account holder. It seems that you are living within what the laws allow.

You may have a problem with the perceptions about fairness with your brother and sister. You did not address if your parents had their retirement needs under control, which could be a second issue.

[txdd]

I want to emphasize that your parents must have had "earned income" (meaning W2 wages and/or net self-employment income) at least equal to the Roth contribution in each contribution year.

If they did not, then the excess contributions were not allowed.

[E as in ERISA]

You might want to check with a lawyer in your state. If your parents die intestate (without a will), their assets might be split according to state law -- generally something like one-third to each child. You wouldn't want this asset to count against your third. I presume that it wouldn't -- because it is going to pass based on the beneficiary designation not through the court. But you want an estate lawyer in your state to tell you that, not an unidentified person on a message board whose credentials you don't know.

[John G]

Katherine - I think you mean the state where the parents reside.... in case the author is from a different state. Not sure of the need for a lawyer when a beneficiary is designated.... but generally reasonable advice to have a lawyer before a death/event. And, absolutely there should be a will.

[mbozek]

IRAs and retirement plan benefits are non probate assets which pass outside of the estate because the beneficaries are designated by the employee. Only exception is in community property states where each spouse is deemed to own 50% of IRA for generational transfers. Retirement plan benefits and IRAs would be divided under intestacy only if the employee's estate is the beneficiary. However, since the assets are owned by your parents, the bene designation can be changed by them at any time without your consent.

[ElGuapo]

I don't think Katherine was questioning whether the bene designation on the Roth accounts would be challenged. The question is how the remaining probate assets would be distributed. Would sylvee's share of other assets be proportionately reduced because she got the Roths? That's the question to ask an estate attorney. Of course John's solution is really the best--make sure the parents have a valid will!

[david rigby]

If your parents have "earned income", they are entitled to contribute to Roths.

Since the original post had a "difficult smell", this comment by JohnG is apropos. When you talk to a lawyer, perhaps this might be a good point to clarify.

[John G]

There are a number of things that "pass" without ever being discussed or tallied in terms of the instructions of a will. Life insurance payouts, IRAs and Roths should have specified beneficiaries and therefore are not include in the grand total of assets to be allocated by a will.

Could other members of the family complain? Absolutely. When money is involved, complaining is an equal opportunity activity.

Your parents should avail themselves of the advice of a good attorney.... before they might be considered incompetent.

The "scheme" you propose might work just fine, but you are taking your chances that someone does not change their mind. Your parents IRA/Roth assets are not under your control.