BTW, this is a neat trick, put pales in comparison to the one in which DH and I both have HDHP plans, both have HSAs, and both contribute the family max to each of our HSA accounts. Our entire family is double insured (at employer cost), but also we’re capitalizing on double the triple tax benefit offered by HSAs. That’s a nearly $15K pre-tax deduction for families with two working parents! Gotta take advantage of the extra breaks when possible. |
This sums it up. You can only fund it up to the amount your kid earned. Huge gift to your kid(s) if you can afford to do it. Before our kid graduated college, they had enough in Roth to have over $750K at retirement age. their life will be much easier in their 30s and 40s, if they have front loaded retirement savings before 30. |
Not a good idea. You do that, then the IRS might ask you to file proper tax docs and pay on that. Not worth it IMO |
Yeah seems like a good way to get your teenager/yourself audited |
Seriously, especially when even the parent is saying 'she "earns" $7k in household chores and errands' and not trying to hide the fact this is just straight-up fraud. Fund up to what your kid can legally claim. Don't be an idiot. |
Maybe just use the 529 conversion?
https://www.schwab.com/learn/story/529-to-roth-ira-rollovers-what-to-know |
Wrong. It is entirely true. What you wrote is not padding or make believe income. |
This does not work under the tax laws for a number of reasons (kid can’t be a household employee, kid isn’t filing sched c income and SE tax, etc). In theory that makes the Roth IRA an excess contribution with no statute of limitations which could come back and bite your daughter in the future but in practice you may well get away with it. |
PP this is an incredibly dumb gamble. Hope you don’t have a security clearance. |
I wonder what age you could start paying for these chores? Five? |
Try never. PP is encouraging tax fraud. |
PP here. As long as your child has earned income, you’re good to go. Five seems a bit early, but perfectly legal. The household chores and errands angle works, but you have to state that this earned income is associated with a different household (e.g., like a friendly neighbor). Same applies with walking dogs, watering plants, mowing lawns, and babysitting. As long as the work is for an outside entity, and payment can be in cash, the IRS rules allow it. |
The 'friendly' neighbor has to pay the child for the labor. Otherwise, this is fraud. |
If you ever see a kid used in an ad for their parents business, you can bet they are well paid as a 'model' |
"Perfectly legal" as long as you find a friendly someone willing to lie to the IRS for you! |