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As investment advisers, we often talk about strategies that not only grow assets but also build lasting legacies. One such strategy is gifting to a family member’s Roth IRA—a tool that helps secure financial independence, offers tax-free growth, and ensures your loved ones can enjoy the benefits of early retirement planning.
The Power of a Roth IRA: A Tax-Free Future
A Roth IRA is an essential financial tool because it allows contributions to grow tax-free, with withdrawals also being tax-free in retirement. The beauty of a Roth IRA lies in its potential for long-term growth. Contributions, once made, continue to grow without being taxed, giving your family members a chance to accumulate wealth over time.
Why Gifting to a Roth IRA is a Smart Choice
Gifting to a Roth IRA isn’t just about giving money; it’s about providing an opportunity for financial growth that lasts. Here’s why this is one of the best ways to help your loved ones:
- Long-Term Tax-Free Growth: When you gift to a Roth IRA, you enable your family member to enjoy years—if not decades—of tax-free growth. This is especially valuable if the gift is made early in their life or career, allowing their contributions to grow substantially over time.
- Tax-Free Withdrawals: Roth IRAs allow for tax-free withdrawals once the account has been open for five years and the account holder is 59½ or older. By gifting, you’re helping ensure your family member has a financial cushion in retirement that’s free from tax burdens.
- Accelerate Retirement Savings: The annual contribution limit to a Roth IRA (for 2025) is $7,000 if you’re under 50 and $8,000 if you’re 50 or older (with the $1,000 catch-up contribution). By gifting, you can help family members reach their maximum contribution each year, especially if they’re just starting out.
- Teaching the Value of Saving: In addition to growing their retirement funds, you’re teaching younger family members the importance of saving early and often. This is a lesson that will serve them for a lifetime, providing them with more than just financial growth but also financial literacy.
Key Factors to Consider When Gifting to a Roth IRA
Though gifting to a Roth IRA can be a great move, there are a few essential factors to consider ensuring you’re following the rules and maximizing the benefits.
- Gift Tax Exclusion: The IRS allows a $19,000 annual exclusion for gifts made to any recipient in 2025. This means you can gift up to $19,000 each year to a person without incurring gift taxes. If you gift beyond this limit, it may be subject to gift taxes or reduce your lifetime estate and gift tax exemption.
- Eligibility Requirements: To contribute to a Roth IRA, the recipient must have earned income. Their total income must also fall within the eligibility limits. For 2025, the income phase-out for Roth IRA eligibility is $150,000 to $163,000 for single filers and $236,000 to $246,000 for married couples filing jointly. If the recipient’s income exceeds these limits, they won’t be eligible to contribute to a Roth IRA.
- Ownership and Control: While you can make contributions to a family member’s Roth IRA, they will ultimately control the account once it’s set up. If you’re contributing to a child or grandchild’s account, they’ll gain full control once they reach the age of majority. It’s important to plan for this transition and help them understand how to manage the funds for maximum benefit.
How to Contribute to a Family Member’s Roth IRA
Contributing to a family member’s Roth IRA is simple and can be done directly:
- Confirm Eligibility: Make sure the recipient has earned income and their income falls below the Roth IRA contribution limits for their filing status.
- Open the Account: If your family member doesn’t already have a Roth IRA, assist them in opening one at a financial institution, such as a brokerage firm or bank.
- Make the Contribution: Contribute to their Roth IRA up to the annual limit. You can add to their account on top of what they’ve contributed, as long as the total contributions do not exceed the annual contribution limit.
- Monitor and Advise: Once the contribution is made, help them monitor the account’s performance. Encourage periodic reviews and make adjustments to the investment strategy as needed to align with their long-term goals.
Final Thoughts
Gifting to a family member’s Roth IRA isn’t just a simple financial transaction, it’s an investment in their future. The benefits of early, consistent contributions to a Roth IRA are immense, offering your loved ones a tax-free nest egg for retirement. By gifting to a Roth IRA, you are helping them start on a path to financial independence while teaching valuable lessons about saving and investing.
At NovaPoint, we specialize in wealth management and retirement planning. If you’re considering gifting to a family member’s Roth IRA or want to explore other strategies to support their financial future, contact us here. We’re here to help you achieve your wealth goals and leave a lasting impact on your family’s financial legacy.
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Written by Blake McDaniel, Investment Associate, Financial Planning Team
NovaPoint – Financial Planning and Wealth Management
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