Opening an investment account for my girlfriend's parents

[Day9]

Hi Bogleheads,

My girlfriend's parents are not very well off, and have $3,000 that they would like to open a retirement account with. The father is a partial owner and chef of a small restaurant chain and the mother gets paid under the table as a waitress and a photograph editor. They are immigrants from Korea but have been living in the states for over 20 years.

The parents do not want to open the account in their name because their son (my gf's younger brother, an undergrad) receives financial aid and this would disqualify him from that (I have not confirmed this personally)

So they gave the $3k to my girlfriend, their daughter, who is currently in medical school (and taking out a ton of loans, but that's another thread). The plan is to open a Vanguard account under the daughter's name.

No one in that family has an IRA. My girlfriend has earned about $1,200 in 2012. Would it be worth it to open a Roth IRA for that amount, and investing the rest in a taxable account? (buying a low-minimum fund like STAR or Target Date)

Should the parents even keep the money in the daughter's name at all?

I plan on buying them a LifeStratgey Moderate fund, or if I need to use the low-minimums a Target Date or STAR fund.

Any response is welcome. Let me know if you need any more information. I'm a hardcore Boglehead with a Roth IRA and Brokerage account at Vanguard. I live with my girlfriend and things are pretty serious.

[awval999]

I wouldn't touch this with a 10 ft pole.

But if you want to:
I think Roth IRA's are sheltered from EFC/FAFSA contributions but you will need to investigate further.
Don't open an account in your girlfriend's name and then 20 years from now they want it back, etc, etc.
Just give the money back to them

[Karamatsu]

It sounds to me like the parents don't really understand what is going on. You'd be taking their savings and putting it at risk, along with a lot of weird tax complications for them and your girlfriend. I think it would be better to skip the IRA. If you have to do anything, take the cash, buy a bank CD that matures when the son is supposed to graduate, and then when that happy day arrives, the parents will be free to invest in an IRA of their own. In principle your girlfriend would still be liable for taxes on the interest on the CD, but it sounds like she isn't paying taxes now, and even if she were, it won't be much.

Try to simplify as much as possible. Money and family don't mix well...

[RadAudit]

If your girlfriend goes the CD route, suggest it be made POD to the parents - just in case.

[bdpb]

My girlfriend's parents are not very well off, and have $3,000 that they would like to open a retirement account with. The father is a partial owner and chef of a small restaurant chain and the mother gets paid under the table as a waitress and a photograph editor. They are immigrants from Korea but have been living in the states for over 20 years.

The parents do not want to open the account in their name because their son (my gf's younger brother, an undergrad) receives financial aid and this would disqualify him from that (I have not confirmed this personally).

I don't think a public internet forum is a place to admit to breaking the law.

Tell them to pay their taxes with the money.

[StillTired]

There should be no problem with the parents having money in a designated retirment account (IRA, 401(k) or the like) and applying for financial aid. Those contributions will not be taken into account by the FAFSA:

http://www.ehow.com/info_7934519_do-inc ... fafsa.html

Generally, you do not need to declare assets within retirement accounts as countable assets on the FAFSA. This means assets in specified retirement accounts, such as IRAs, 401k plans and the like. However, if you have long-term savings outside these retirement accounts -- in annuities, bank accounts, stocks, bonds, certificates of deposit or mutual funds -- you must declare them.

As long as they have over $3K of earned income this year (or 2012 since it's still early), they can put that directly into a traditional or Roth IRA. There is absolutely no reason for your girlfriend to be involved and it will only cause complications going forward (if she puts it in an IRA, assuming she has earned income, she will not have non-penalized access to it when they need it and if she puts it in a taxable account they are missing out on the tax savings).

[texasdiver]

Sounds like there could be more going on than meets the eye.

Under normal circumstances there is absolutely no reason whatsoever for the parents not to open IRAs in their own names. Roth IRA if their income is low and the tax deduction isn't worth much or traditional IRA if it is higher. It is ridiculous for parents to be putting their retirement savings into the hands of their children and raises all sorts of problems for both the parents and the children. Retirement savings in IRAs or 401(k) accounts are not taken into consideration for financial aid.

Either the parents are completely clueless about their options or something else is going on that they aren't tell you and for some reason they are trying to "hide" the money. Perhaps they aren't filing taxes or aren't doing it properly and don't want to come into the crosshairs of the IRS by opening an IRA that will get reported to the IRS. Perhaps they have debts of some type and are trying to hide assets. Perhaps their immigration status is problematic. Could be any of a hundred different things. But the whole thing doesn't smell right.

[dm200]

If your girlfriend goes the CD route, suggest it be made POD to the parents - just in case.

+1
I would look for a credit union to open such an acocunt.

[LadyGeek]

My girlfriend's parents are not very well off, and have $3,000 that they would like to open a retirement account with. The father is a partial owner and chef of a small restaurant chain and the mother gets paid under the table as a waitress and a photograph editor. They are immigrants from Korea but have been living in the states for over 20 years.

The parents do not want to open the account in their name because their son (my gf's younger brother, an undergrad) receives financial aid and this would disqualify him from that (I have not confirmed this personally).

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