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jimsonn writes (in part):

I set up a Roth IRA for my child and contribute the $2000 a year. I set it up so that she gains control of it when she turns 21. At 18, she decides to do something with her life and go to college and some of the funds are used to pay for her first years. At age 19, she decides to drop out of college. Can I transfer that account to one in my name? Without taking a major tax hit?

I reply:

In addition to the practical difficulty of setting up an IRA for a minor (most custodians won't accept them because minors can't sign binding contracts), there's a legal problem. The maximum amount that may be contributed to a person's IRA is the smaller of $2000 or their earned income (an exception applies that allows taxpayers who are married filing jointly to make contributions on behalf of a non-working spounse). Thus, unless your child (or her spouse!) has earned income, no contributions to her Roth IRA are possible. If she does have earned income and you establish the account, the money is hers, and you can't take it back. --Bob
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