Are you a grandparent with an estate set up to provide inheritances to your grand kids? If you so, please keep reading this post about how to fund their retirement using a Roth IRA and them buy a house with the same money.
Most kids I know of today are not going to benefit from working for a company that pays them a pension at the end of a long company career. One way to help your grand kids with their retirement would be to help them fund a Roth IRA every year. Technically, according to the IRS anyone can give a financial gift to anyone else without being taxed as long as the amount is less than $13,000 (this is for the tax year of 2010 – and the amount can change year to year).
With this being the case and you having your eye on their retirement, you may want to give them some of the estate money that you have set aside for them now on the condition that it goes directly into their Roth IRA. Concerning their Roth IRA and the gift tax rules set up by the IRA, you can give up to the full Roth IRA contribution limits (actual limits based on their age and annual income) for their Roth IRA as long as they are eligible to make their respective full annual contribution. To be eligible to make the full contribution your grand kid will have to have a job where they make at least $5,000 taxable income annually or $6,000 if they are age 50 or over.
If you start this process early enough, say when your grand kids turn 15 or 16 and get their job, you can help them sock away a pretty sizable nest egg without any taxes due on that nestegg by the time they are eligible to pull money out tax free at age 59 1/2. In the event that your grand kid wants to buy a home and meet certain Roth IRA requirements, they can tap into their Roth IRA as a first time home buyer for up to $10,000 tax and penalty free.
For the specifics of your situation, you should check with a financial planner or tax professional to find out your options for helping your grand kids with funding their Roth IRA.
If you get to the situation where your grand kid wants to buy a home, you can also help them out with a gift for their down payment. There are a few mortgage loans programs like FHA that will allow most if not all of the down payment and closing costs for buying a home come in the form of a gift.
