Quick IRA question

[stockrex]

I opened an IRA in my little girls name few years back and funded it.
But my accountant elected not to file it as a deduction.
money has been sitting it for few years.

Is it ok to withdraw money out of it or close it? no penalties correct?

 

[Leo99]

I assume this is a ROTH IRA? You wouldn't claim this a deduction, it's under your daughter's name.

Your daughter would be the one withdrawing the funds. Has it been 5 years since you opened the Roth IRA?

 

[stockrex]

Yes I think it is roth, I funded it as I was going to pay her that year and then she was going to deduct that on her taxes.
I never paid her and she never filed taxes that year or after that.

 

[Olas]

I saw the thread title and thought Irish Republican Army.

I guess it's some kind of investment account for you guys?

 

[Joel_MD]

Is your daughter still alive? If she's alive is she past 59-1/2 years old? If she's younger she cannot take a distribution without paying a penalty except under a few circumstances like first-time home purchase or certain medical expenses.

 

[Blokey]

Originally Posted By: Olas
I saw the thread title and thought Irish Republican Army.

I guess it's some kind of investment account for you guys?


I know what you mean, former expat here.

IRA = Individual Retirement Account

 

[Danh]

Originally Posted By: Olas
I saw the thread title and thought Irish Republican Army.

I guess it's some kind of investment account for you guys?


"Individual Retirement Account". Unfortunate acronym, but it allows an amount of money to be set aside for retirement with certain tax advantages and restrictions.

 

[stockrex]

Originally Posted By: Olas
I saw the thread title and thought Irish Republican Army.

I guess it's some kind of investment account for you guys?


lol, yes, IRA = Individual Retirement Account

though there is an irish connection, my daughter's name is Gaelic.

 

[stockrex]

Originally Posted By: Joel_MD
Is your daughter still alive? If she's alive is she past 59-1/2 years old? If she's younger she cannot take a distribution without paying a penalty except under a few circumstances like first-time home purchase or certain medical expenses.


She is 11

 

[Astro14]

Originally Posted By: stockrex
I opened an IRA in my little girls name few years back and funded it.
But my accountant elected not to file it as a deduction.
money has been sitting it for few years.

Is it ok to withdraw money out of it or close it? no penalties correct?


Simply put - no, it is not OK to withdraw it.

Once the money is in there, it's in an IRA. The company with whom you have invested (in her name), will generate a 1099 (one copy to you, one to the IRS) if you withdraw it. Then she will have to pay both income tax and penalties (10%) unless, as mentioned, she's 59 1/2, or disabled and unable to work, or is buying a first home.

Whether or not you, or she, filed for the deduction, it's still an IRA. It's still subject to the rules. IF she didn't take a deduction, that's fine, but you'll have to keep track of this contribution on every subsequent tax return, likely by filing IRS form 8606 for non-deductible IRAs. That form establishes the "basis" for the IRA, and she'll be taxed in the future on the difference between the basis and the account's value at withdrawal.

This is not a simple situation, and you should consult a tax professional to be certain of how the rules apply to you.

 

[Bandito440]

It's important to know if it's a standard or Roth IRA.

If withdrawing the money from a standard IRA, taxes and penalties apply.

You may withdraw the contributions from a Roth IRA at any time, tax and penalty free. Earnings in that account will be penalized if you withdraw them.

If you don't really need the money, make sure it's in a Roth account and put it into the lowest cost domestic equities fund that they have. She'll thank you later on.

 

[bubbatime]

I thought you couldn't open/deposit money in a Roth IRA if you didn't have income?

There is no legal way for an 11 year old to have an income.

If a 16 year old makes $3000 working over the summer, than they can deposit up to $3000 in a Roth IRA.

Or am I getting confused and mixed up with something else?

 

[Bandito440]

Originally Posted By: bubbatime
I thought you couldn't open/deposit money in a Roth IRA if you didn't have income?

There is no legal way for an 11 year old to have an income.

If a 16 year old makes $3000 working over the summer, than they can deposit up to $3000 in a Roth IRA.

Or am I getting confused and mixed up with something else?

Actually, I think that's correct.

The OP will have to look into the account further and get back to us.

 

[Astro14]

Originally Posted By: Bandito440

You may withdraw the contributions from a Roth IRA at any time, tax and penalty free. Earnings in that account will be penalized if you withdraw them.


yes...

You can only withdraw up to the amount contributed. The amount by which it's grown is subject to penalties...

Again, more detail is needed, and a tax professional should be consulted...

 

[Joel_MD]

Originally Posted By: bubbatime
There is no legal way for an 11 year old to have an income.

That is not entirely true. There are exceptions to the minimum age in the Fair Labor Standards Act for minors working for their parents. I worked at my dad's welding business beginning when I was ten, sweeping the office floors and what-not for $1.50 an hour and working my way up to metal fabricating and welding by the time I was 16. My Social Security statement shows I have income every year going back to 1980 when I was ten.

 

[Olas]

Originally Posted By: stockrex
Originally Posted By: Olas
I saw the thread title and thought Irish Republican Army.

I guess it's some kind of investment account for you guys?


lol, yes, IRA = Individual Retirement Account

though there is an irish connection, my daughter's name is Gaelic.


Aisling? Naimh? Or, errrrmm, can't think of any more! Gaelic names sound pretty (NOT about yr daughter, just generally)

 

[Olas]

Originally Posted By: Blokey
Originally Posted By: Olas
I saw the thread title and thought Irish Republican Army.

I guess it's some kind of investment account for you guys?


I know what you mean, former expat here.

IRA = Individual Retirement Account


Where you from mate?

 

[Blokey]

Olas, check your pm...

 

[raytseng]

1) Why would they file it as a "deduction", your contribution is a gift to your child.
1b) If your child was filing taxes, it is not a deduction for them either as it's a ROTH IRA. Plus likely they aren't paying tax.

2) Was the Roth IRA created legally? in terms of did the child have taxable income? You better create a ledger and bookkeep some household chores as a "job" if you get notified of an audit. But because of (1) there's no audit or trail of this.


I think you got some issues with the understanding, so you better do some studying or pay someone to do. Start at the brokerage where the account is held; they can get you free advice.


It is always "OK" to withdraw the money. Don't let anyone say otherwise like they'll throw you in jail if you do.

There will be 10% penalty if it's not been held for 5years.

It is not your money, it is your child's money, unless you use it for a qualified expense like 10k of first house or college.

 

[stockrex]

Originally Posted By: raytseng
1) Why would they file it as a "deduction", your contribution is a gift to your child.
1b) If your child was filing taxes, it is not a deduction for them either as it's a ROTH IRA. Plus likely they aren't paying tax.

2) Was the Roth IRA created legally? in terms of did the child have taxable income? You better create a ledger and bookkeep some household chores as a "job" if you get notified of an audit. But because of (1) there's no audit or trail of this.


I think you got some issues with the understanding, so you better do some studying or pay someone to do. Start at the brokerage where the account is held; they can get you free advice.


It is always "OK" to withdraw the money. Don't let anyone say otherwise like they'll throw you in jail if you do.

There will be 10% penalty if it's not been held for 5years.

It is not your money, it is your child's money, unless you use it for a qualified expense like 10k of first house or college.



So I went and got the orig paperwork from the IRA and made a call to my accountant.

1. Roth IRA
2. Yeap,
3. I am able to take out principal without penalty.
4. Yes, she did not file taxes that year

Still confused about the penalty for an item that was never filed with IRS.

My girls had their college funded before they were born.