Roth IRA

Q&A: Can I open a Roth IRA for my minor grandchildren?

July 27, 2026 By Liz Weston Leave a Comment

Dear Liz: Where can I open a Roth IRA for my minor grandchildren?

Answer: Fidelity, Charles Schwab and Vanguard are among the large brokerages that offer custodial IRAs with no account minimums or fees.

Getting your grandkids started with saving for retirement is a great idea, but they’ll need to be earning their own money before you can contribute to an IRA or a Roth IRA for them. You can match whatever taxable income they receive from a job or self-employment up to the annual contribution limit, which is $7,500 in 2026. You’ll want to keep copies of the tax returns showing their income in case you’re ever audited.

If the minor doesn’t have taxable income, you could consider contributing to a Trump account. That requires filling out IRS Form 4547, but only certain people in a certain order are allowed to fill out the form. For example, if the children have a legal guardian, that person fills out the form. If there’s no legal guardian but the child has a parent, the parent fills out the form. If there is no parent, an adult sibling can fill out the form. Only if there is no legal guardian, parent, or adult sibling is a grandparent allowed to fill out the form. Once the account is established, up to $5,000 per year per child can be contributed.

That’s only the start of the many complicated requirements surrounding these accounts, so seek a tax pro’s advice before proceeding.

Keep in mind that with Trump accounts, the money is turned over to the child at 18, while custodial accounts must be turned over by the age of majority (typically either age 18 or 21, depending on the state). If you want to maintain control of the money for longer, consider funding a 529 college savings account. The contribution limits are much higher, the money is tax-free when used for qualified education expenses, and up to $35,000 can eventually be rolled over to a Roth IRA.

Q&A: Should I make my kids beneficiaries of my IRA?

July 13, 2026 By Liz Weston Leave a Comment

Dear Liz: Since retiring, I’ve been converting a traditional pre-tax IRA to a Roth IRA. I’ve got another small pre-tax account that I could do the same with. My reason for converting is that my spouse has a very large pre-tax IRA that probably won’t be used up in our lifetimes, and I don’t want my adult children to face a large tax bomb when we both are gone.

Is there any downside to including our kids as beneficiaries for that account, say 10% each? That way, if he dies before I do, some of the pre-tax account will be delivered to the kids (starting the 10-year distribution clock), and then they’d have another 10 years to withdraw (and pay taxes on) whatever remains at my death. I could foresee adding grandkids as beneficiaries as they approach adulthood.

Is this a bad idea? Would it be better to continue whittling down the pre-tax accounts by converting them to Roth accounts?

Answer: Last week’s column covered some of the hazards of leaving retirement accounts to minor children. If the account was owned by anyone other than a parent, distributions would need to start immediately and likely would be subject to the parent’s tax rate. Plus, handing a big wad of cash to a teenager or young adult often isn’t advisable. You can control the distributions by creating a trust, but that has its own tax implications.

Including your adult children as beneficiaries isn’t as fraught with peril, but you do lose some flexibility. The surviving spouse is allowed to treat an inherited IRA as their own, which may allow them to delay distributions. Plus if the kids are in their peak earning years when they inherit, they could wind up paying taxes at high rates.

Continuing with the Roth conversions may be a better way to defuse the tax bomb, particularly if your tax rate is lower than theirs and you’re willing to foot the tax bill. You’re reducing the size of the taxable IRA while creating a tax-free pot of money for your heirs. Obviously you’ll want to discuss all this with your tax pro and your estate planning attorney before proceeding.

Q&A: What can be done with unused 529 funds?

February 2, 2026 By Liz Weston

Dear Liz: My parents set up 529 college savings accounts for my niece and nephew. The accounts are now quite substantial. My nephew chose to go to community college for his freshman year, and seems to be leaning toward not continuing in college. If he chooses to go to a trade school instead of college, can the 529 funds be used for that? Or, if he decides not to pursue either college or trade school, what becomes of those funds in his 529 account? Can they be transferred to his sister (who may not need it due to the large amount in her own account)? Is there any ability for my parents to recoup the money? What are the available options?

Answer: College savings accounts can be used at any eligible post-secondary institution, including most trade and vocational schools. In addition, up to $35,000 of unused 529 funds can be rolled tax- and penalty-free into a Roth IRA for your nephew, subject to various rules. If your nephew had student loans, up to $10,000 could be used to pay those, as well.

Your parents have many other options for unused funds. They can change the beneficiary to your niece, or any other eligible family member (which can include the original beneficiary’s spouse, children, siblings, nieces, nephews, cousins, in-laws, or parents). In addition to college expenses, 529 withdrawals can pay for up to $10,000 in annual expenses for tuition at elementary and secondary schools.

Account owners can even change the beneficiary to themselves, although they would need to incur expenses at an eligible institution to get tax-free withdrawals.

Finally, your parents could simply withdraw the money and owe income tax on the earnings plus a 10% federal penalty.

That should probably be a last resort, though. Since there’s no deadline to use the money, it can be left alone to grow for the future. Your nephew may want more education later, or your niece’s education could be more expensive than expected. Even if they don’t use the money, either or both of them may someday have kids who could use the money for their schooling.

Q&A: Should I convert my IRA to a Roth?

January 12, 2026 By Liz Weston

Dear Liz: I have $160,000 in a 403(b) retirement plan and I’m 70. I know I have to start taking required minimum distributions (RMDs) at age 73. Should I transfer the funds to a Roth IRA or can I start taking the RMD from the 403(b) and leave the remainder to grow?

Answer: You can take your RMDs from the 403(b). Transferring the money to a Roth IRA would be known as a conversion, and that could make the entire amount taxable.

Late-in-life conversions can make sense if future RMDs will push you into a higher tax bracket than you are now, or if you’re willing to pay the tax bill to provide future tax-free income to your heirs. (Roths don’t have RMDs, so the account can be passed intact to your beneficiaries, who will usually have 10 years to drain the account.) Conversions can have other consequences, such as raising Medicare premiums, so a tax pro’s advice should be sought before proceeding.

Q&A: How to fix a mistaken contribution to an IRA

December 22, 2025 By Liz Weston

Dear Liz: When I retired, I had a small 401(k) with about $12,000 in it. Instead of rolling that money into an IRA, I took a distribution and paid taxes on it. I had no immediate need for the remaining funds, so eventually I opened a new IRA account and deposited the money.

I now realize I should have put it in a Roth IRA so I wouldn’t face double taxation on the money. This is the stupidest thing I’ve done in recent memory. Is there any legal mechanism I can use to get that money out and into a Roth without paying taxes the second time?

Answer: You made a mistake, but probably not the one you think.

You can’t contribute to an IRA — or a Roth IRA, for that matter — if you don’t have earned income. So if you’ve fully retired, you should contact your IRA administrator and let them know you need to withdraw your “excess contribution” as well as any earnings the contribution has made.

If you contributed this year, you have until your tax filing deadline — typically April 15, 2026 — to remove the funds without penalty. If you contributed in a previous year, you’ll typically face a 6% excise tax for each year the money remained in your account.

Now, a warning about financial mistakes: They tend to become more common as we age. That can be incredibly unsettling, especially to do-it-yourselfers used to handling finances competently on their own. Retirement is a good time to start implementing some guardrails to protect ourselves and our money.

Hiring a tax pro would be a good first step. Anything to do with a retirement fund should be run past this pro first to make sure you’re following the tax rules.

Q&A: When it comes to Roth IRAs, 59½ and 5 are the magic numbers

February 24, 2025 By Liz Weston

Dear Liz: You recently answered a question about Roth conversions, saying that each conversion triggered its own five-year holding period. It was my understanding that after age 59½, the five-year rule doesn’t apply and earnings aren’t taxed.

Answer: The rules for Roth IRAs can be complicated, and they’re different for accounts that you fund directly versus those that are funded through conversions.

If you contribute directly to a Roth, you can withdraw your contributions any time without tax or penalty. You can withdraw earnings tax free if you’re 59½ or older and the account has been open for at least five years.

But as mentioned in the previous column, the five-year holding period applies to each conversion you make from another retirement account into a Roth. What goes away after age 59½ is the 10% penalty for early withdrawal, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. Earnings withdrawn before five years can be taxed as income. However, it’s assumed that any withdrawals are principal first, so you’d have to withdraw the entire conversion amount before earnings would be taxed.

Luscombe notes that some people set up separate accounts for each conversion to make tracking the five-year periods easier. That could be especially helpful if they plan to make substantial withdrawals that could include earnings before the last conversion amount hits its five-year mark. Once all the five-year periods have expired, the accounts can be combined into one.