Reply to Does your teen have their own IRA or Roth?

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Reply to "Does your teen have their own IRA or Roth?"

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[quote=Anonymous]Echoing that parents need to understand the rules around Roth IRAs for their kids. A couple of important points that I'm not sure come across in the thread so far:

1) Kids have to have earned income. You can't just start a Roth IRA for them and fund it with gifted money if the kid hasn't earned income that year. That doesn't have to be a formal job with a paycheck -- it can be babysitting or lawnmowing money -- but it's a good idea to have the kid keep a record of money they've earned.

2) You can't exceed what the child has earned in a year. So "matching" only works if the kid is earning the full amount contributed but has kept some of it. So kid earns $1000, they can put $500 in and you can put $500 in, but they can't earn $250 and you put $500 in.

Here's a reader-friendly version of the rules, but always consult the IRS or an outside professional with any questions. You may think you're doing your kids a favor by bending or breaking these rules, but they're the ones who will have to deal with any messes you made by funding their Roth IRAs with contributions in excess of what they actually earned if they get flagged.

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