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Here's my situation, and I appreciate any advice.

I am in a place where I'd like to give my sister $20k, and make sure it goes to a good use. After floating lots of ideas with her, the idea that we agreed on would be for me to use the money to help her fund an IRA, that she could withdraw for a downpayment on a first time home if that made sense, or keep for retirement otherwise. One main reason for the IRA rather than just giving the money straight out is to keep it the money from being a temptation. We don't want it to get used for day to day bills or debts or vacations or whatever.

Only now that I start looking at putting this into action, I'm realizing there are some problems with this plan:

1. The minimum she can contribute is a few thousand per year (increasing over time, but still nowhere near $20k). There's no way to get the whole $20k in at once.

2. She's getting married in a couple of months, and I would like to get this money transferred to her in some form before then so that just on the outside chance it ends in a divorce it will be considered hers rather than community property.

3. There's the $11k gift tax limitation... if I gift all $20k at once that'll cause unnecessary taxes. I think that in itself could be worked around by gifting say $9k to my parents and then them gifting it to my sister.

4. She has to have income equal to the amount contributed to the IRA. She has worked in the past but is now working for her fiance and I'm not sure exactly how it's all getting reported. I don't think this is an issue but something to be careful with.

5. The Roth IRA has to be in existance for 5 years before a withdrawl for downpayment can be made. They might want to buy a home earlier; they're looking to have kids starting as soon as 1-2 years after marriage.

There seem to be a variety of possibilities:

- Just gift the max Roth IRA contribution every year until the $20k is transferred into the IRA over 6 or so years.

- Have her new husband (who is a Chiropractor, a small business) open a SEP-IRA for her (as his employee), and fund that. She does do lots of admin and other work for him. I think the problem there is that he needs to have had employees for 3 out of the last 5 years to do that, and I'm not sure if he has. I'm no tax accountant but it seems a bit dicey to have your spouse on the payroll, but perhaps that's legit. It might also require social security payments or other burdens that wouldn't be required otherwise. And I doubt that he would be able to record income for her more than $20k or so, which means that 25% of that, $5k would be the max she could contribute in a year.

- Just wait until they are ready to buy a house and gift the money at that time for the downpayment. My concern with this is that I think it would be considered community property and therefore that equity in the house could be split upon divorce.

- Just give her the full $20k now and have her use it to fund her IRA over time, or use as down payment when the time is right. This is probably too tempting for her since she has had money management problems in the past.

- Set up some kind of trust fund now that would limit her uses of the money in the future. This would be a good way to go because the money would be in her name before marriage, but sounds a bit expensive in lawyer/admin fees for just a $20k balance.

BTW, both me and my sister live in California.

So my questions:

- Any ideas for getting the money to her in such a way that it
- Can't be touched for purposes other than downpayment or retirement (or any of the other allowed IRA distribution).
- Will not be divided between her and her husband if they divorce. We don't think they'll get divorced, but it never hurts to plan for unlikely possibilities.

- I assume that if I gift her money while she's married that it's considered community property, whereas if I give it before marriage it's not, correct?

- IRAs are not considered community property, and funds in them don't get divided up in a divorce, right? Does it make any difference how they are funded, or is that always true?

- If a downpayment were taken from the IRA then I would assume that equity would be divided upon divorce rather than staying with her, but that seems a bit unclear.

I know I should contact a lawyer and/or tax professional but I want to get more focussed on possibilities and issues before I do that. And I know that any info I get here isn't legal or professional advice... I'm just looking for leads on info I don't have. Thanks for any and all advice. This has been posted on the inheritance strategies board too.
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