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  • Roth IRA for kids?

    What do you all think of this?

     

    http://cashcowcouple.com/investing/kids-rich-custodial-roth-ira/

     

    How much proof do I need to have in regards to my kids earned income since they don't file income taxes if they earn less than $6200/year?

     

  • #2
    Like the author says and like its been discussed here on the forum previously, it should be adequate to keep decent records of job description w pay structure, type of work done, time and date, amount of payment made.

    I am wondering though, is there a way to keep an 18/21 yo from raiding the Roth and ruining the potential for decades of compounding... I guess not, apart from imparting good financial sense into them.

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    • #3


      How much proof do I need to have in regards to my kids earned income since they don’t file income taxes if they earn less than $6200/year?
      Click to expand...


      They will need to file a tax return to report SE taxes unless they were paid by W2.

      How do I start a Roth IRA for my child?
      How to deduct the cost of raising your child

      You should have a contract with your child stipulating duties and remuneration for those duties. Pay by a separate check rather than simply paying for their expenses and calling it their pay (this one has been tried and shot down by the IRS). Pay should be reasonable - what you would pay an unrelated child to do the same work.

       
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        I always wonder what age is most prudent to start a Roth IRA for a minor. Most children don't grow up to be child actress or models, and hence the amount of money obtained is not significant. But what about household duties, mowing the lawn etc. Is that considered regular chores expected of children or truly a work that gets paid by check. Finally after doing all this, is it  worth to have an IRS audit an spend ten times as much money defending it.

        I have decided to leave that alone and have been making the max $14K x 2 gifts annually to my daughter, and being invested in Vanguard funds. Maybe when she goes to college and can truly earn money for Roth she can start one.

         

         

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        • #5


          But what about household duties, mowing the lawn etc. Is that considered regular chores expected of children or truly a work that gets paid by check.
          Click to expand...


          Money made doing chores is not counted as "earned income". Money made while babysitting for the neighbors, mowing other people's yards, etc. is considered earned income, and rightfully so. When your daughter starts doing those jobs, I hope you will reconsider moving the appropriate amount of gifted money to a Roth each year. I don't know her age, but it sounds as if she will have a nice tidy sum at her disposal when she reaches the age of majority (18 in most states).
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6


            When your daughter starts doing those jobs, I hope you will reconsider moving the appropriate amount of gifted money to a Roth each year. I don’t know her age, but it sounds as if she will have a nice tidy sum at her disposal when she reaches the age of majority (18 in most states).
            Click to expand...


            She has 5 more years before the UGMA becomes hers and hopefully she will keep the financial sense she has acquired till now let it ride out until her retirement. If she earns any money in high school / college she can use it and take an equivalent amount that is less than $5.5K and put that in a Roth IRA.

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            • #7
              You can always transfer the amount she earns into the Roth when she starts working, as you are the guardian on the account until she's 18. Honestly, I treated my kids' accounts as if I were still the guardian for several years beyond 18 and they didn't really care - neither did Vanguard. That wouldn't work with all kids, I'm sure.
              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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              • #8
                My children both have UTMAs and Roths, the latter for legitimate (W-2 or 1099) earned income, my son as a lifeguard, camp counselor, and swim instructor and my daughter as a singer and performer. I do not expect them to raid the UTMAs, and, to be honest, even know that they legally can at age 18. In the event that they do, however, the financial repercussions would be quite severe, as I still control the 529s, the car, future cash disposition, etc. It would be shortsighted and quite foolish!

                Everyone always says that they are worried that the children will dig into UTMA accounts when they hit the age of majority, but I know that it never occurred to me growing up, nor any of my friends who had such accounts. I would guess that there are stories in which they do, but I expect that they are few and far between and that it is more of a theoretical concern than a practical one.

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                • #9


                  In the event that they do, however, the financial repercussions would be quite severe, as I still control the 529s, the car, future cash disposition, etc. It would be shortsighted and quite foolish!
                  Click to expand...


                  Actually, I seem to remember issuing a similar threat to my kids. Happy to say now that, at ages 35 and 33, they seem to have taken it to heart as both of their Roth IRAs are still intact.
                  Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                  • #10
                    My parents started a Roth for me once I had w2 income at 17. It's nice to have now! I agree with vagabond - I had no idea how to access the ira since my dad set it up (and didn't know it was possible to use the funds). Honestly I was only vaguely aware that it was there until later. I wouldn't worry to much about that aspect.

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