Q: Our son is graduating from college, and we'd like to open a Roth IRA for him as a graduation gift. He'll be starting a job in the fall but doesn't work now. Can we contribute to an IRA for him even though he isn't earning money yet?
A: What a great graduation present! Contributing to a Roth IRA now can give your son a huge head start on building a tax-free stash of money for retirement. If he's no longer a minor (generally age 18 for IRAs; ask the IRA administrator about the rules in your state), he'll need to open the Roth IRA himself. But you can give him the money to contribute to the account.
Your son must earn some income from a job during 2013 in order to qualify to make Roth contributions. But he can contribute the money now, even if he doesn't start working until the fall; he just needs to earn at least as much as the contribution amount -- with a $5,500 maximum in 2013 -- by the end of the year (investment income and allowances don't count).
If he earns $3,000 for the year, for example, then he can contribute up to $3,000 to the account. If he doesn't end up getting a job by the end of the year -- or if he earns less than the contribution -- he has until October 15, 2014, to withdraw the contribution and earnings on it from the account without having to pay the 6 percent penalty for excess contributions (but he will have to pay taxes on the earnings he withdraws). For more information, see the "excess contributions" section in IRS Publication 590, Individual Retirement Arrangements.
Contributing to a Roth IRA can also be a great gift for high school graduation. Kids of any age can contribute to a Roth IRA, as long as they've earned some income from a job during the year. A few brokerage firms and mutual fund companies don't let minors open IRAs, but several firms make it easy to open an account and have low fees and investment minimums. TD Ameritrade, for example, has no minimums or annual fees for its IRAs, and you can invest in anything that is available to its brokerage customers. The IRA must be in the minor's name as well as the custodian's name, and it must use the minor's tax ID number. Charles Schwab allows minors to open a custodial Roth IRA with $100; it charges no annual or maintenance fees.
The World Beyond Fountain Pens: Grad Gifts
Give Your Child the Gift of a Roth IRA
As many students already know, offices are less formal than ever, which means that the suit-and-tie look may be an anachronism in their new job. Then again, casual Friday (or Monday, Tuesday, Wednesday ... ) can wait until your fresh-faced grad gets a foot in the door. Until then, a sharp interview suit is vital. If you want to help your favorite grad fill out his or her interview wardrobe at little cost, it's hard to beat a gift certificate to Express, Jos. A Bank, J.C. Penney, or H&M.
Even before the interview happens, your young grad will need a strong résumé. Consumer expert Andrea Woroch suggests that giving a gift certificate to a résumé service could be the perfect way to set your grad on the path to gainful employment. Alternately, it never hurts to buy them a do-it-yourself book such as Amazing Resumes or Knock-Em Dead Resumes.
Woroch also suggests buying your favorite grad a subscription to a magazine or newspaper. Beyond the value of helping him or her keep up with current events for its own sake, having a handle on the latest news can give a person a major leg up when it comes to a job interview. A daily newspaper is a great idea if your grad is already a newshound; if not, try starting with a subscription to Time, The Week, The Atlantic or Wired.
After four years of school, the last thing most students want to do is wander back into a classroom, but professional skills never go out of style. From preparing for interviews to catching up on the latest software, chances are that your graduate could benefit from some last-minute desk time.
That tired Jansport backpack may have served your graduate for the last four years, but chances are good that it's going to look a little out of place in the office. The choice between a messenger bag, computer bag, briefcase or portfolio is often a matter of taste, so you might want to go with a gift certificate. And if you do buy the bag, remember the gift receipt.