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how do I contribute to child's Roth IRA thru corporation

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  • how do I contribute to child's Roth IRA thru corporation

    My kids now regularly help me with the IT and management of my side business corporation.  they are young but much more tech savvy.  I want to pay them them in the form of Roth IRA.  What is the easiest way to do it?  I have had two basic recommendations:

     

    complicated way:

    a)  open checking/bank accts for both of them

    b)  hire online payroll company to pay them

    c)  using their individual checking/bank acct, open and fund Roth IRA

     

    easy way:

    a)  document in my corporation minutes that they are hired and as to what position + pay

    b)  purchase roth IRA directly under their name

     

    What is the correct and easiest way?

  • #2
    they need earned income that is reported.

    Comment


    • #3
      If you mean by "side business corporation", that you are an S-Corp, you have likely doubly screwed yourself:

      1. If your primary employment is via a W-2 and your Social Security wages >= the SS maximum wage base of $127,200 in 2017. You are paying far more in FICA than you would have SE tax.

      2. A unincorporated business does not have to pay FICA on their children < 18 and FUTA < 21. No FICA and no FUTA, no need to run payroll. All you would have to do is issue them a W-2 at the end of the year. You would still want to issue them a pay stub and checks or direct deposit. This would properly document the work hours and hourly wage.


      As a corporation you will have to run payroll and deduct employee FICA (7.65% ) and pay employer (7.65%) FICA and FUTA. You will have to handle the filing and reporting of all of this. You really want a payroll service to mechanize this for you.

      Bank of America has Basic Intuit Payroll for free if you direct deposit to your children's BoA accounts. If you don't use them you are probably talking $20 - $40 per month.

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      • #4
        It's been a while since I've looked at this but I'll tell you how I and my CPA do it.  Im not too sure anymore if its completely correct but let's see what everyone else says?  I like feedback!  You can only do with 1099 self employed income.

        I open bank accounts for the kids.  They have their own checking and savings accounts.  One is PERSONAL and one is BUSINESS use.  They're personal is for their own money they own.   They're doing the Dave Ramsy Daddy Match.   The business account is strictly for their payments from my side business.

        I open fidelity ROTH accounts for the kids in their names.  I also opened UGTA accounts as well which they can contribute a small amount from their personal accounts.

        I have a contracts with each kid... stating their roles and job description that they've signed.

        I pay them monthly directly into their respective accounts.

        I transfer funds to their Fidelity ROTH accounts quarterly (or whenever you want).

        I let my CPA know what I did and document on an income/expense sheet... this gets included as an expense to the business income.  I believe the threshold is around $6k where you don't have to pay normal SE taxes for your own kids?   I do pay the SE taxes for the wife.

        Hope it helps!

         

        Comment


        • #5
          It is pretty hard to justify having children work for their parents as a 1099 independent contractor. It fundamentally busts the issue of control and is not a hands-off transaction. Not to mention, any self-employment income over $400 requires paying self-employment tax (15.3%). It is income tax that is not required until you have exceeded the standard deduction, 2017 = $6,350.

          Whereas, if your children are W-2 employees for your incorporated business, you/they do not have to pay Social Security and Medicare taxes and you do not have to pay unemployment insurance.

          If you paid your children >= $400 as supposed independent contractors. Your children should have filed a Form 1040, Schedule C, Schedule SE and paid SE taxes. If you paid your children >= $600, you should have also filed a 1099. If you CPA was complicit in all this he is also in a lot of trouble.

          So pretty much what we have observed with recent threads about Roth IRAs for children.. Is people engaging in tax evasion and making stuff up as they go. When it is extremely easy to do the right thing, pay them as W-2 employees and save you and your children money in the meantime.

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