Can I make a retirement fund for my mom?

[badams2011]

My dad passed away this year and I am one of his beneficiaries. My mom doesn't have a retirement fund and I would like to create one for her using some of the money I got from my dad. Is that possible? I would just give her the money except she has a habit of spending money really fast, so I want something that would pay out the amount to her monthly. But am I allowed to do that on her behalf or does she have to set it up?

[Katherine S 63]

Great question!!

My first question would be, does she work?

If she is filing Single, then she would not be able to put money in a retirement account unless she has income.

If you gift her some money, and she does not have a 401 K  available for her at her place of employment then she can contribute up to $6500 (if under 50) and $7500 (if over 50) to a traditional IRA or ROTH IRA.  The IRA  would be claimed on her tax return as a contribution and would lower her taxable income by that amount.  When the money is taken out, then it would be taxed (including any interest/gains on investment)  The ROTH IRA would be entered on her return but would not lower her income.  When the money is taken out, then it would be tax free (including any interest/gains on investment).

If she is over 59 1/2 she can take the money from the IRA and ROTH IRA out and avoid any penalties.  If she keeps the ROTH IRA in her account for 5 years, she can take the principal out and not be taxed even if under 59 1/2 years old.

That I guess is the issue, will she take the money out?  Then she might be taxed and penalized depending on her age.

Please give me a thumbs up if this was helpful.

Katie S.

[VolvoGirl]

Is there a reason you can't just give her money each month or whenever she needs it?  I would just set aside the total amount in a separate bank account or CD etc. in your name.  You don't have to set up anything official or fancy.   You can give anyone up to 15,000 (not sure of the amount for 2023) each year without filing a gift tax return.  

[badams2011]

I'm not sure she'd like that very much. She's very independent. If there isn't an option of making a retirement fund for her, I'll have to bring it up to her, of course.

[badams2011]

She is single and working, and she is 66 years old. I don't want her to feel like she needs to work until the day she dies, but I also don't want her to have all of the money all at once (not to mention I think giving her a lot of money all at once would make jt taxable, right?). But it sounds like at her age, she would be able to take it all out of the retirement fund anyway?

[Katherine S 63]

Yes, she could take out the money at any time.  That would defeat the purpose.  Good idea to think this through!  

Katie S.

[badams2011]

Lol, yes it would. Thanks for clarifying things for me! I will have to explore other avenues.