Rusty Stalder: “Is there anyway for my brother and me to contribute to a tax deferred retirement fund on behalf of my parents that will not reduce the amount they can contribute to their own IRA’s?”

You could buy them a variable annuity, which grows tax-deferred, but I think that’s a rotten idea. Buy them, instead, a few shares of stock each year, or of an index fund, and just let them grow. (If they should shrink first, that’s OK, too. As long as you keep adding new money each year, any price declines just allow you to buy more shares “on sale.”)

Because most stocks don’t pay much by way of dividends these days (and neither do index funds), much of the growth will be tax-deferred without suffering any of the annuities’ costs and fees. And when the time comes to begin selling, 20 or 30 years from now, the gains, most likely, will be lightly taxed — versus fully-taxed withdrawals from an annuity.

Annuities are an expensive way to convert lightly-taxed long-term capital gains into heavily taxed ordinary income.

Your folks have good sons.


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