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SMART MONEY: Get broker's help to start Roth IRA for grandkids

by By BRUCE WILLIAMS on December 29, 2013 1:50 AM

DEAR BRUCE: I would like to help my great-grandchildren by starting a Roth IRA for each of them (total of four). How do I start this process? Do I need a broker, or can I just go through a banker? — D.M., via email

DEAR D.M.: First of all, understand that you can’t start a Roth IRA for any of the children unless they have earned the amount of money you want to contribute. It doesn’t necessarily mean they have to put the money in, but if you want to put $1,000 into a Roth, they must have earned and reported $1,000 of income.

Do you need a broker? Not necessarily, but I would not consider doing it without one. Your banker could act for you. I would use a broker, but keep in mind that each of those great-grandchildren has to earn (in a tax year) as much as you’re going to put into the Roth.

DEAR BRUCE: We bought a home in Florida five years ago for our son to share with two of his friends, all sharing the bills equally. We did this while my son attended college so he would not have to worry about bills and he could get the best education. We are paying his share. He will be graduating in 2014. After that we will sell the home.

My question is, when we sell the home, we want to give our son the remaining money after the note is paid. Do we have to pay any taxes? Is there something we need to do? The leftover amount will be around $31,000. — N.K., via email

DEAR N.K.: Your son is a very lucky fellow. I am not certain how you will have that much money leftover, but if you choose to, you may give it to him without any tax consequences. You say “we,” so I assume that means you and your spouse, which means you can give your son $28,000, $14,000 apiece, one year and the remaining $3,000 the following year. Doing it this way, there are absolutely no taxes to be paid.

I am inclined to ask why you want to give this much money to your son. Why not put the money away into a separate account and let him earn his way? If he really needs it, you can give him all or part.

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