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Congress could just as easily close this loophole, by stating that if parents of the child MAGI is over $220k then no contributions can be made at all.

What loophole? In the case of ESA contributions the law prohibits contributions for persons with income exceeding a certain level. Period. Trying to make it look like someone else is making the contribution doesn't change the basic fact that it's being made by someone who legally can't do so. No matter how you slice it, even if your sister wrote the contribution checks in the scenario you describe it would still be you making the contribution, with your sister acting as your agent. They didn't get Eliot Spitzer for being a john. They got him via money laundering laws because of the way he was trying to hide the payments. Which is why I said and continue to say that it's never a good idea to try to game the system.

As to Roth IRAs, the law prohibits contributions from persons with income exceeding a certain level. Period. The law does not prohibit conversions at any income level or using any filing status. (Before 2010 it did prohibit conversions by those with AGI over $100,000, as well as prohibiting conversions by people filing Married, Filing Separately at any income level.) Some people with too much income to make Roth contributions can exploit this difference and make what we call "back door" contributions without tax consequence. That's what we usually call a loophole, which Congress could easily close by reinstating the income limit for conversions. If you can't see the difference I can't help you since I can't think of a better way to put it.

I seem to have put you off with the use of provocative language such as "theft" and "conspiracy." I use such in the same manner as the farmer uses the board in the old saw about a 2x4 and a mule and see no need to change. I'll again suggest you take a look at 529's. They may not fit your needs, but they do have much more liberal contribution rules, and some states even give you a break on state income tax. But don't get me wrong. It's impossible to underestimate how much I care what you and your sister, if she chooses to participate, do.

Rule Your Retirement Home Fool
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