Is it wrong to make an IRA contribution using money gifted to me?

by Ibolya Balog, CPA | Dec 19, 2017
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I make $30,000. My parents gifted me $5,500, which I placed in an IRA, reducing my taxable income and resulting in a better return. Was this wrong?

No, that was not wrong. On $30,000 income, you probably have difficulty saving for retirement. So, funding the IRA with the $5,500 gift was a good idea. If you are fairly young, that IRA can grow in value until your retirement. If your adjusted gross income for 2017 is less than $31,000, you may even get a retirement savers tax credit when you file your tax return. Your overall return will depend on how you invest your IRA, preferably in a low-fee mutual fund.

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Answered by: Ibolya Balog, CPA, is an associate professor at Cedar Crest College in Allentown, Pa.

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The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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