I just want to make sure you are not talking about Educational IRA (Education Savings Acct) ? which has lower limit ($2k).

Roth IRA sounds like a better deal than 529 then !! how come everyone is pushing 529 ?

since you don't have to pay tax if you make only $2k per year(pls correct me here).
so I can give me kid $2k salary for being good (or whatever). then contribute $2k to match. then my kid can contribute $4k to his Roth IRA? this sounds better than Educational IRA or 529. so what's the catch?

my kids already have Education IRA and 529, can they open Roth IRA on top of those? thanks !!

You can hire them in your small business providing you abide by the rules:

Your business is not incorporated.

You hire your children to work for you in your business.

You pay them reasonable wages.

More info here: info

so if I got this right. to get to maximum of $4k for Roth IRA:

1. JR. make $4k earned income. then contribute all $4k into Roth IRA.

or

2. JR. make $2k earned income. and put $2k in Roth IRA. Parent then can match that and put in additional $2k into JR. Roth IRA ?


just trying to think of a "way" to put all $4k into Roth IRA. My kid is only 3 and 4. not sure what is a fair wage is wage called allowance? how would you do it?

edited
I read the link by DreamKrusher. kids have to be 7 or older.

bellwilliam said:so if I got this right. to get to maximum of $4k for Roth IRA:

1. JR. make $4k earned income. then contribute all $4k into Roth IRA.

or

2. JR. make $2k earned income. and put $2k in Roth IRA. Parent then can match that and put in additional $2k into JR. Roth IRA ?

#1. Yes.

#2. No.

Mordoch already explained this very well, but let me give a more concrete example:
JR makes $2k in earned income. JR. spends the $2k buying the latest Playstation game on eBoy. Parents can give JR $2k to put into IRA. But total contributions to IRA from all sources cannot exceed $2k.

Remember also that if JR paid $160 in Social Security taxes so his take-home pay was only $1840, he (or someone else) can still put $2k into his IRA.

frootmall said:

Mordoch already explained this very well, but let me give a more concrete example:
JR makes $2k in earned income. JR. spends the $2k buying the latest Playstation game on eBoy. Parents can give JR $2k to put into IRA. But total contributions to IRA from all sources cannot exceed $2k.

Remember also that if JR paid $160 in Social Security taxes so his take-home pay was only $1840, he (or someone else) can still put $2k into his IRA.

This explanation is correct. I have matched my son's earnings $ for $ ever since he started working. Last year he made ~ $1780 of which he saved ~ $0. I "gifted" him $1780 which he put into his ROTH IRA. This year he made approximately $3000 and I will "gift" him $3000 to put into his ROTH IRA. I plan on doing this until he is 21. It's one way I chose to help him learn the value of investing and planning for the future.

SIDE NOTES:
Starting next year he will also be saving 10% of his bring home for an emergency fund.
He already knows about Fatwallet and it's benefits. He checks with me about the latest deals on any items which he wishes to purchase.

WDEagle

siliconbeaver said:You must be talking about Education IRA, had been named under Roth IRA years ago. at least, at time (1998~1999) I opened the IRA account for my kids. The account was named "Roth IRA". The account is renamed as "Education IRA". But I still believe the Roth IRA for kids is Education IRA.

Go Education(Roth) IRA for your kids. It's best investment for kids, as I know.



I have never heard of an Educational ROTH IRA. While they can use funds from the ROTH for educational purposes, a ROTH is a ROTH no matter whether it is for a kid or an adult.

WDEagle

siliconbeaver said:Then you must be too late to open the Roth account.
As said, I started it 1998~1999. For education purpose only.

BTW, why not google "roth education ira". easy to get answer.

I'm not arguing with you ...I'm just not aware or a "roth educational ira" (which I googled). The first hit said:Roth and Education IRAs
The Taxpayer Relief Act of 1997 signed into law earlier this year creates two new categories of Individual Retirement Accounts (IRAs), the Roth IRA and the Education IRA.

Contributions to Roth IRAs are nondeductible, however distributions from a Roth IRA after age 591/2 (and distributions for other qualified purposes) will not be includable in gross income. Thus, a Roth IRA allows an individual to create a tax-exempt retirement account that is not subject to income tax when funds are withdrawn. An individual can contribute up to $2,000 per year to the account, less any amounts contributed to other IRAs. The Roth IRA is not available to all taxpayers. Contributions are phased out for joint filers with gross income in excess of $150,000 and single filers with gross income in excess of $95,000. Rollovers from regular IRAs to Roth IRAs are available to taxpayers with gross income of less than $100,000. Income tax must be paid on the rollover amount, but there is no penalty tax for early withdrawal, and subsequent distributions from the Roth IRA will not be taxed.

An Education IRA allows an individual to contribute up to $500 per year to a tax free account if distributions from the account are used exclusively for qualified higher education expenses of the designated beneficiary of the account. The amount that can be contributed to an Education IRA is phased out for taxpayers with gross incomes in excess of $95,000 or $150,000 for joint filers.


Subsequent hits talk about ROTH AND Educational IRAs as different instruments.

WDEagle

bellwilliam said:http://www.fairmark.com/rothira/minors.htm

just read this. author is saying paying kids to do housework, is not going to cut it.

I guess JR. have to have a real job !!!Fairmark is a good site, and it does a good job of explaining a lot of noncontroversial tax rules. Unfortunately, on a number of issues, he takes ultra-conservative positions, which is a perfectly fine thing to do, but applies them to areas of the law which are hazy, without being clear that there's room for disagreement.

The IRS would have some reasonable chance for success if they ever decided to go to court on this issue, but I don't think that's ever going to happen (for one thing, because it would establish a precedent that a large category of income isn't taxable). If they did win, their chance of getting any kind of penalty is basically nil: a judge is just not going to hold you responsible for treating intra-family payments as taxable income, when there's nothing in writing that says they aren't, and Congress has told us that it's taxing "income from whatever source derived." You're not going to be punished for not taking the same logical leap as Fairmark.

The kids' income has to be real, legitimate and fair, and remember that IRAs are the kids' money; but if you're paying a fair price for housework, and treating it consistently for tax purposes (including filing returns for the kids, if necessary), I'd feel reasonably OK with using that as justification for an IRA contribution. And, to be clear: I'm taking a somewhat aggressive position here with which there's plenty of room to disagree.

frootmall said:
Remember also that if JR paid $160 in Social Security taxes so his take-home pay was only $1840, he (or someone else) can still put $2k into his IRA.

If Jr is under 18, then he shouldn't have to pay Social Security, Medicare or state unemployment/disability taxes and his employer (you) do not need to send in any match (SS/Medicare)either.

debentureboy said:
The earned income has to be real. You have to pay reasonable wages for real work. And... again... You have to file taxes. It's not real earned income for a Roth unless Jr. files a tax return.

The child may not owe or even need to file a federal tax return if the earned income was $5000 or less (2006) (See IRS publication 929) and the child did not have any unearned income.

One of the drawback is they could take this money at age 18 and withdraw it to buy a sportscar, etc) because it is their money. Of course there may be penalties, taxes, etc. However, the kid may not care as long as the sports car is shiny and fast.