roth ira and the children

[Guest naidae1]

Is it possible to open a roth ira, make contributions annually, and then use those contributions to purchase a home for a child while leaving the gains (hopefully) in place? Would this be considered a first time home purchase since it would be (for my child) or does the irs look to my house buying record to make that decision? Also, can a roth ira be transfered to another persons name?

[Michael Devault]

Yes, you can open a Roth IRA and, after five years, make a qualified first time homebuyer distribution. The lifetime limit for such is $10,000, and the distribution can be used to pay acquisition costs of the principal residence of you, your spouse or any child, grandchild or ancestor.

A Roth IRA cannot be transfered to another persons name while living.

Hope this helps.

[John G]

Michael, buying a house for an ancestor? Don't you have to be dead to be an ancestor?

Naidae1, Your plan may not be as good an idea as you first think. The Roth is a wonderful tax shelter, but you may not qualify for it in the future or legislation may negatively change the availability. Taking money out of a shelter diminishes the value of the shelter. You might want to keep the shelter and help your child by gifting or loaning funds. It is not common for your circumstances to change significantly and unpredictably over the next five+ years.

To demonstrate this effect, think back to what you knew about your year 2000 personal status five years back in 1995 , or ten years back in 1990. Unpredictable factors include: divorces, births, disabilities, inheritances, job changes (forced and voluntary), promotions, accidents, etc. Over 5 - 10 years lots of things change, which suggests being flexible in your plans.