Roth IRAs for Kids

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:We wanted to teach them the value and importance of saving and compounded interest. Once they started W2 jobs at 15 (lifeguards, unfortunately babysitting didnt count), we offered to match however much they put in.

But your match is just their spending money or what because it can't go into the Roth

People are allowed to gift money for someone else’s Roth IRA contributions. That is legal, as long as the person has enough earned income to make that contribution amount.

Yes I know, but the gift can't exceed their earned income or the annual limit

[Anonymous]

One of the few ways that babies or small children can legitimately have earned income is acting or modeling

[Anonymous]

We opened Roths for our kids as soon as they had W-2 jobs. We then contributed up until they got their first professional jobs after school. They saw the value of the Roth and now max out their own contributions.

Also we did set up UGMA for their educations (vs 529s). Any left over was theirs, ie if they got scholarships, DE credit, public etc (and we talked a lot about trade offs/choices.) Both are using the remaining balances as part of housing down payments.

Yes, we are very blessed to have these resources and to be able to provide for out kids. We also talked a lot about finances and how to manage money so they are making wise choices.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Is everyone setting up Roth IRAs for their kids now? I’m GenX and after paying for private schools and in the midst of paying tuition for private college (full pay), I’m surprised people are now also starting retirement accounts for their kids.

If you do this, how much are you putting in their accounts monthly or yearly?

Your first big mistake was sending your kids to private schools before college. My kids went to public high schools and subsequently both went to top 10 Universities for academics and are now both in very rewarding and highly lucrative careers.

That’s totally off topic though.

Not really. OP seems confused how people can afford to fund their kids ROTH IRAs. Many of us can afford it because we didn’t pay for K-12 private.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Is everyone setting up Roth IRAs for their kids now? I’m GenX and after paying for private schools and in the midst of paying tuition for private college (full pay), I’m surprised people are now also starting retirement accounts for their kids.

If you do this, how much are you putting in their accounts monthly or yearly?

Your first big mistake was sending your kids to private schools before college. My kids went to public high schools and subsequently both went to top 10 Universities for academics and are now both in very rewarding and highly lucrative careers.

there is a point here. OP is bemoaning that they already paid through the nose for private schools and colleges (when we live in an area with excellent free education) but ironically turn their nose up at the guaranteed $$ building move they can make for their kids.

That's great you get an excellent free education. Not everyone does. And, what was great years ago isn't great now.

Even more the reason that OP cannot be "surprised" that people seed their kids' ROTH from about at 16. Most kids do not require 17 years of private school tuition.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:an amount equal to kid's w-2 income

+1 This is the rule

Op here. Explain to me like I’m 2. So each year you put in the amount they earn from summer jobs, etc. into the Roth? How long do you do this for?

You can put as much as they earn on a W-2 upto $7,500 (I think; check) into a Roth. The contribution can be withdrawn any time and the earnings after age 59.5.

If you want to 'bend the rules' a bit, you can also contribute an additional (or maybe only this) $400 into their Roth. Kids can make upto $400 in miscellaneous income without paying payroll taxes.. Most kids do this through baby sitting or mowing neighbor's lawns, etc. and your kid may or may not. Don't think the IRS is going to be coming around checking on this.. It's small but adds up.

Don't do this. It's an easy audit flag so the IRS can look into all the income of high earners. It's their right, and even if you have nothing to hide, it'd a huge PITA

Can you explain this? How would a kid earning, say $1500 in W-2 income and $400 in babysitting income trigger a red flag?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:an amount equal to kid's w-2 income

+1 This is the rule

Op here. Explain to me like I’m 2. So each year you put in the amount they earn from summer jobs, etc. into the Roth? How long do you do this for?

You can put as much as they earn on a W-2 upto $7,500 (I think; check) into a Roth. The contribution can be withdrawn any time and the earnings after age 59.5.

If you want to 'bend the rules' a bit, you can also contribute an additional (or maybe only this) $400 into their Roth. Kids can make upto $400 in miscellaneous income without paying payroll taxes.. Most kids do this through baby sitting or mowing neighbor's lawns, etc. and your kid may or may not. Don't think the IRS is going to be coming around checking on this.. It's small but adds up.

Don't do this. It's an easy audit flag so the IRS can look into all the income of high earners. It's their right, and even if you have nothing to hide, it'd a huge PITA

Can you explain this? How would a kid earning, say $1500 in W-2 income and $400 in babysitting income trigger a red flag?

I'm assuming the $400 is just paid without a w-2 or 1099. Stuff like that is an easy audit flag.

[Anonymous]

You don't necessarily need w-2 for income. Just keep records of how that money was earned - babysitting, dog walking...etc.

[Anonymous]

Anonymous wrote:You don't necessarily need w-2 for income. Just keep records of how that money was earned - babysitting, dog walking...etc.

+1. My son has had a house sitting business since he was 10. He leaves an invoice with his clients when he drops off their mail. If we’re audited for his Roth, we’ll use the invoices as proof. He also gets paid to participate in a couple of NIH studies and we’ll use the emails they provide as proof for the money they pay via gift card. He does file taxes on the income because along with reffing, he makes a pretty tidy sum for being 14.

[Anonymous]

They have to have earned income. It is their money from wages. It is them starting a retirement account. You can't just fund it.
My 13-year-old knows when she gets a summer job someday, some if it will be going into a Roth IRA we will set up.

[Anonymous]

Anonymous wrote:They have to have earned income. It is their money from wages. It is them starting a retirement account. You can't just fund it.
My 13-year-old knows when she gets a summer job someday, some if it will be going into a Roth IRA we will set up.

Yes and no. Yes, they need a job (earned income, whether taxed or not) to be able to fund a Roth IRA. No, it doesn't have to come from them. You can put in an equivalent amount. If your kid earns $1000, you can choose to let them spend that 1K and put in 1K out of your pocket into the Roth.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:an amount equal to kid's w-2 income

+1 This is the rule

Op here. Explain to me like I’m 2. So each year you put in the amount they earn from summer jobs, etc. into the Roth? How long do you do this for?

You can put as much as they earn on a W-2 upto $7,500 (I think; check) into a Roth. The contribution can be withdrawn any time and the earnings after age 59.5.

If you want to 'bend the rules' a bit, you can also contribute an additional (or maybe only this) $400 into their Roth. Kids can make upto $400 in miscellaneous income without paying payroll taxes.. Most kids do this through baby sitting or mowing neighbor's lawns, etc. and your kid may or may not. Don't think the IRS is going to be coming around checking on this.. It's small but adds up.

Don't do this. It's an easy audit flag so the IRS can look into all the income of high earners. It's their right, and even if you have nothing to hide, it'd a huge PITA

Can you explain this? How would a kid earning, say $1500 in W-2 income and $400 in babysitting income trigger a red flag?

I'm assuming the $400 is just paid without a w-2 or 1099. Stuff like that is an easy audit flag.

Nope. You can always report non-w2/non-1099 income such as tips or other casual income and pay payroll taxes on it while filing taxes. For babysitting income, the threshold is $400 below which you don't even have to report. We report it for the express purpose of contributing to a Roth. The tax software tells you if any payroll taxes are due.