Help divest me of this crazy idea!

[KTP]

Ok, I have a pretty crazy idea that is probably legal but maybe not so moral.

My mom and dad live on a pension and SS. They actually live quite well but modest, and they usually take 1 or 2 trips a year, sometimes even a cruise. Dad plays golf about 8 days a week too. Anyway, point is, they are pretty satisfied with their retirement.

Ok, here comes the trick. Mom makes a few thousand a year income from a craft business. She calls it her mad money, and spends it on whatever she wants. This makes her eligible for opening a Roth, right? No age limits. She has zero desire to put her mad money in a Roth.

Enter me. What if I gifted her the equivalent of her earned income each year and directed her to open a Roth with it with the agreement that it is her account in name only, but for practical purposes I would be directing the investments. After five years, she could withdraw even earnings tax free and gift them to me ($13K a year), or I could inherit the Roth and take regular distributions tax free.

Other than the moral issues of using your mom to make money, I think I see a hole in the plan. The Roth money might be subject to claims from medicare?

[maat55]

If giving your mom money is legal and her investing in a roth is legal and you are not stealing from anyone, what is the moral question? You should certainly be concerned about any claims that could occur, but I would not fret one second about uncle scam not getting a cut.

[disneysteve]

I don't see anything illegal or immoral about that plan. Make sure you are named as beneficiary of the account. I don't know about the Medicare issue. I'm not sure why her Roth would impact her Medicare.

[krantcents]

Ok, I have a pretty crazy idea that is probably legal but maybe not so moral.

My mom and dad live on a pension and SS. They actually live quite well but modest, and they usually take 1 or 2 trips a year, sometimes even a cruise. Dad plays golf about 8 days a week too. Anyway, point is, they are pretty satisfied with their retirement.

Ok, here comes the trick. Mom makes a few thousand a year income from a craft business. She calls it her mad money, and spends it on whatever she wants. This makes her eligible for opening a Roth, right? No age limits. She has zero desire to put her mad money in a Roth.

Enter me. What if I gifted her the equivalent of her earned income each year and directed her to open a Roth with it with the agreement that it is her account in name only, but for practical purposes I would be directing the investments. After five years, she could withdraw even earnings tax free and gift them to me ($13K a year), or I could inherit the Roth and take regular distributions tax free.

Other than the moral issues of using your mom to make money, I think I see a hole in the plan. The Roth money might be subject to claims from medicare?

It may be legal & ethical, however I not so sure you can have another Roth account. My theory is you will get caught if it is a illegal. I stay away from things like that.

[disneysteve]

It may be legal & ethical, however I not so sure you can have another Roth account. My theory is you will get caught if it is a illegal. I stay away from things like that.

The account wouldn't be OP's. It would be his mother's.

[JoshuaHeckathorn]

Sounds legit to me...kudos for coming up with the idea :-).

[cschin4]

After five years, she could withdraw even earnings tax free and gift them to me

Here is the fatal flaw of your plan. This might come to pass but she will view it as "her" money, a big fight will ensue and yada yada (and people get strange over money even if you don't think it will happen to you). Do NOT mix business and family and comingle your finances in anyway unless you want a $13K headache.

[cschin4]

Also, it would be counted against them as income they withdrew and you simply cannot just hand someone $13K. There are tax laws regarding gifting large amounts of money. *WARNING*!

[maat55]

After five years, she could withdraw even earnings tax free and gift them to me

Here is the fatal flaw of your plan. This might come to pass but she will view it as "her" money, a big fight will ensue and yada yada (and people get strange over money even if you don't think it will happen to you). Do NOT mix business and family and comingle your finances in anyway unless you want a $13K headache.

This is the number 1 reason I would not do it. It is a risk to family cohesion.

[disneysteve]

Also, it would be counted against them as income they withdrew and you simply cannot just hand someone $13K. There are tax laws regarding gifting large amounts of money. *WARNING*!

The money mom withdraws from her Roth is not taxed.

And yes, you can just hand someone $13,000. That is the current gift tax exemption.

[disneysteve]

Here is the fatal flaw of your plan. This might come to pass but she will view it as "her" money, a big fight will ensue and yada yada (and people get strange over money even if you don't think it will happen to you). Do NOT mix business and family and comingle your finances in anyway unless you want a $13K headache.

This is a very valid concern but it really depends on the family dynamic. My mother and I are very much in sync on financial issues. I help her manage her funds. I monitor her portfolio. We use the same broker and invest in some of the same funds. When she is occasionally short on cash, I float her money until hers comes in and then she repays me. On occasion, she has done the same for us. She never looks at her money as HER money. She looks at it as all being money that will be mine eventually and thinks it is important for me to know where it is and what is happening with it. Money has never been a secret in our family like it is in so many others.

So if you have that kind of relationship, I think this deal would work just fine.