Roth IRA for kids

[emergentmd]

Hi all,

 

I have an LLC, independent contractor.  I have 3 kids ages 5,7,&9.

 

I would like to start a roth IRA for them.  I understand that they need to have income but what would constitute income?  Can I hire the 9 yr old as a babysitter or clean my office?  Do I need to have her on my LLC payroll?  Is 9 Yr old too young to have earned income/job?

 

What restrictions does the government place on starting a Roth for a child?  What proof do I need to satisfy the IRS?

[jfoxcpacfp]

You can hire the 9yo to clean your office because that is a business expense. I think that is a very good idea and, if you are not incorporated, there will be no FICA taxes on their wages, either. At some point, perhaps she could help you with your website, newsletter, marketing, etc. and you can pay her for that, too.

You cannot hire your child for personally sittin for her brother/sister and count it as earned income for her. But sitting for other people would count. Yard work and chores for others, delivering the paper, dog walking, etc. are other examples of good ways for children to earn money at a young age.

[emergentmd]

What kinds of proof or paperwork do I need to keep if she is babysitting?  Can I just write it down on a journal?

[jfoxcpacfp]

emergentmd wrote:

What kinds of proof or paperwork do I need to keep if she is babysitting?  Can I just write it down on a journal?

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Sure you can, but better to open a bank account in her name. It will be good experience to learn about managing money, reconciling her checking, and budgeting as she watches her account balance grow. Teach her. My dad hired me to work at his printing business at 12 and I still remember him showing me how to write my first check. I continue do exactly as he taught me, kind of as a tribute to him (he passed from a glioblastoma 26 years ago). Your daughter will never forget these lessons.

Parents who do this are giving their children an incredible gift...

[q-school]

what's a check?

 

[jfoxcpacfp]

q-school wrote:

what’s a check?

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I was afraid of that, you rat.

[lost]

Suggest:

1) Have a written contract (can be simple, one page) with job description, start date, wages etc.

2) Maintain timesheet for hours worked.

@Johanna

Can the kid bypass regular checking account and have the pay deposited directly to Roth IRA account?

[jfoxcpacfp]

lost wrote:

@Johanna Can the kid bypass regular checking account and have the pay deposited directly to Roth IRA account?

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Sure - you as the employer can set it up to be drafted from your business bank account. But, hey, I thought most parents actually contributed to the Roth for their kids. At least match whatever the child puts in (for "estate planning" purposes if nothing else  ).

[lost]

jfoxcpacfp wrote:

lost wrote:

@Johanna Can the kid bypass regular checking account and have the pay deposited directly to Roth IRA account?

Click to expand…

Sure – you as the employer can set it up to be drafted from your business bank account. But, hey, I thought most parents actually contributed to the Roth for their kids. At least match whatever the child puts in (for “estate planning” purposes if nothing else ? ).

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Thanks. Agree. I just want to have less bank accounts.

[HumbleInvestor]

jfoxcpacfp wrote:

Sure – you as the employer can set it up to be drafted from your business bank account. But, hey, I thought most parents actually contributed to the Roth for their kids. At least match whatever the child puts in (for “estate planning” purposes if nothing else  ).

Click to expand...

What is the mechanism to contribute to the Roth for kids? Are you funding their Roth directly and paying your normal tax rates or do they get lower rates?

 

[jfoxcpacfp]

HumbleInvestor wrote:

jfoxcpacfp wrote:

Sure – you as the employer can set it up to be drafted from your business bank account. But, hey, I thought most parents actually contributed to the Roth for their kids. At least match whatever the child puts in (for “estate planning” purposes if nothing else  ).

Click to expand…

What is the mechanism to contribute to the Roth for kids? Are you funding their Roth directly and paying your normal tax rates or do they get lower rates?

Click to expand...

Yes, the parent gifts the $$ into the Roth for the child. The Roth contribution is nondeductible, so tax rates are irrelevant.