Giving the Gift of an IRA this Season


BOSTON (TheStreet) -- Better than socks? That may depend on the attitude of the recipient, but as holiday season approaches, a unique gift may be to wrap up a retirement plan for someone you love.

Though 401(k)s are tied to a workplace, the self-directed nature of IRAs mean they can be bought and given to a recipient of your choosing as a present that, properly managed, really will keep on giving.

This holiday season consider a less traditional gift: An IRA, a gift that really keeps on giving.

A benefit, if you give an IRA to your spouse, is that it offers another outlet for household savings if your primary IRA is maxed out.

A Roth IRA may be an ideal way to go for the generous relative, as a traditional IRA will trigger taxes upon withdrawal.

When you open an account in someone else's name, most banks and brokerage firms can handle all the details and paperwork. The cost -- often as low as $200 to $500 -- can vary depending on the amount of additional services or guidance you want.

Along with choosing a facilitator, you must make sure the recipient is eligible for a Roth. To start with, they must have a modified adjusted gross income of less than $120,000, as per IRS regulations (married couples, filing jointly, have a higher limit, $176,000). Establishing a Roth in someone else's name also requires that neither the initial seed money nor annual contributions you may offer can exceed the recipient's annual income. That may not be too difficult, given that for anyone under the age of 50, annual contributions -- from any and all sources -- must be $5,000 or less. Older Roth investors are allowed a higher contribution limit of $6,000.

Another requirement may be a bit trickier if you intend the IRA as a surprise. You will need to have, on hand, the recipient's Social Security number and financial information such as income. And since anyone over the age of 18 will be required to sign documents establishing the account, you're much more likely to pull off a surprise for a kid (who is admittedly, less likely to appreciate it immediately).

Married couples have the option of adding a spouse to an annuity plan. Establishing a "two-life" annuity allows benefits to continue being paid to whichever party lives longest. Not only will the gesture ensure future security for your spouse, but because the risk is diluted among two people, rates are typically lower. Another restriction is that, to keep assets from being taxed upon withdrawal, the new owner cannot take distributions until they reach the age of 59.5.

Some may decide to give a financial gift to an organization intead of a person. With a Charitable Gift Annuity, a charity gets cash, securities or other assets that are invested to benefit the organization and donor, who gets annuity payments for the rest of their life. A drawback is that if the charity goes out of business, you may never fully collect on the promise.

Donors can also donate IRA assets directly to a charity, though doing so requires that they be at least 70.5 years old and give no more than $10,000 a year. This allows them to forgo taxes on the amount donated as part of their annual distribution. Regulations allowing these donations, however, will last only until Dec. 31 unless Congress extends the opportunity.

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