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I am having a little dispute with TD Waterhouse over an educational IRA for my daughter that I am attempting to set up. Maybe someone can help. Here's the scenario:

Parents and grandparents cannot contribute due to AGI limitations. Daughter, who is four months old, is well within the AGI ceiling. Dad (that's me) submits an educational IRA application to Waterhouse listing himself as the responsible individual and daughter as the depositor and beneficiary. He includes with the application a $500 check from grandparents to waterhouse stating "gift to [grandaughter]" in the memo field.

Waterhouse has rejected the application on the theory that the grandparents must be the depositors if they are the ones submitting the check. But I told them that my daughter and her grandparents had a conversation (in a complex sign language known only to us, given that my daughter is way too young to speak yet) in which the grandparents presented granddaughter with a gift of $500, granddaughter accepted the gift, and granddaughter then directed grandparents to deposit the gift to her in her educational IRA. I will swear up and down to my local IRS agent that this is what happened.

Now why can't I do this? Do I really have to go through the trouble of establishing a checking account for my daughter, having the grandparents deposit the check in the checking account, and then write a check to Waterhouse out of that account. Somebody please explain to me why I can't take the short cut.
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