What kind of other retirement account is it? Why do you want to pull from it instead of doing a normal Roth conversion?
I didn't want to use foul language in the forum, especially in the first post of a thread, but it's a variable annuity. Not a complicate or expensive one...it's just a Vanguard fund wrapped in an insurance product. It's a few basis points above the normal fund's fees. I never have to "annuitize", so can just pull from it as needed.
If you "gift" to someone and expect them to pay you back and have an agreement to that effect, that is what the IRS calls a loan. If they pay you no interest, then the foregone interest is considered a gift to them in the year they didn't pay it.
They could pay back interest, no problem, because I expect to make money on the Roth account. We could just call what they pay back principle plus interest.
Just pull from a regular IRA and convert.
Nothing wrong with letting the other "special" IRA sit there, is there ?
Yes, as a matter of fact, there is something wrong with letting it sit there. The way this works is that you must pull out 100% of the gains before you get back the tax-free basis. So the money I put in is "buried" under the gains. It's more important for me to get at that buried money than it is to convert traditional IRA money to Roth.
What you outlined would undoubtedly be denied as a scam if IRS knew about it. They would probably never know but that doesn't make it any better. Also, you would need to wait until your daughter is 59.5 to get her return gifts. And she would not be legally obligated to return it since it was a "gift" in the first place.
Right. On the face of it, I'd be loaning the money and the agreement would be to get it back, plus "interest" (i.e. whatever the gains were). As to the 59.5, see kaneohe, below. As to not legally obligated, they could cut and run, but of course they'd be leaving behind inheritance if they made that choice. These are people I raised. Like I said, they are trustworthy. Maybe there's a way to write up a loan agreement so that the IRS wouldn't deem it a scam.
You could get the gifts (contributions) back at any time. The earnings on the gifts would be at 59.5 and an oldest Roth of 5 yrs.
I opened-up Roth accounts and gifted to them when they first went into college. I funded the accounts at the amount of their meager federal work study earnings. So the oldest Roth account is already five years old. So what you're saying is that if I gifted $X, I could always get $X back without any tax consequences at all. But if I wanted anything beyond that (gains, that is), then that would trigger a penalty.
What's your marginal tax rate? 12%? Is it really worth playing questionable games for that?
True. It's probably a "dumb idea". I kind of knew that going in. But I thought it might be an interesting thing to explore. Seemed like there must be other folks who have no earned income and maybe no tIRA's, but are young enough to want to get in on the Roth action. Besides, like I said, just thinking out loud. Ain't nothing but something to do.
Gift the money to your children, then decades from now if you are in a nursing home and need the money you can guilt them into paying for your nursing.
That did cross my mind, actually
Both they and I would know that if I never "needed the money", I might keep extending the loan to the point where it ends-up in the estate, and then they will split the estate.
Also consider that IRS doesn’t really accept “zero interest loans”. That is, you can certainly forego interest payments but the IRS expects you to report a minimum amount of interest (AFR - Applicable Federal Rate) as income on your own tax return. The AFR depends on the length and terms of the loan and is set by the IRS monthly. The current rate for a fixed loan term longer than 10 years is 3.11%.
Good point. So if I do loan them the money, as opposed to giving it to them, then I'd need to mess with this crap, which I certainly don't want to do. Makes me just want to give it to them and later, if they decide to give it back, fine. If not, they'd have gotten it anyway in the estate.
Thanks all for your comments. Always a good place here on er.org!
