I know I've read a thread in this forum about Roth IRA's for a child, but despite searching I can not find it.
I want to setup a Roth IRA for my step-daughter mainly to help pay for her college. She's 12 years old. My question is does she have to have W-2 income, or can it just be income she's earned from doing things like mowing our lawn, etc. if it's well documented per our records?
nevus said:I know I've read a thread in this forum about Roth IRA's for a child, but despite searching I can not find it.
I want to setup a Roth IRA for my step-daughter mainly to help pay for her college. She's 12 years old. My question is does she have to have W-2 income, or can it just be income she's earned from doing things like mowing our lawn, etc. if it's well documented per our records?
Thanks If the idea is to help pay for college, why not a 529, which can be from any source (incl. just a gift from parents)? As for Roth eligibility, any earned income should qualify; keep good records for everything and if necessary file tax returns for her.
nevus said:She's 12 years old. My question is does she have to have W-2 income, or can it just be income she's earned from doing things like mowing our lawn, etc. if it's well documented per our records?
Thanks
Sure it can be for doing things like mowing your line, provided it falls under child labor provisions of your state, and you issue her a 1099, pay disability insurance, and have her pay 15% self employment tax.
FYI: IRA = Individual Retirement Account 529 = Educational Account
The following works for many (one-size fits most):
In this order:
1) MAX a 529 plan in grandma's name (parent's names as secondary owners; child as beneficiary) 2) MAX a ROTH IRA in parent name (principal contributions can be withdrawn tax/penalty free)
jackcrawfish said:The following works for many (one-size fits most):
In this order:
1) MAX a 529 plan in grandma's name (parent's names as secondary owners; child as beneficiary) 2) MAX a ROTH IRA in parent name (principal contributions can be withdrawn tax/penalty free)
When applying for financial aid (FAFSA), there will be no assets of the child. (http://www.savingforcollege.com/intro_to_529s/does-a-529-plan-af... Fixed link by removing extra ) Is there any additional benefit to having grandparent as the owner and parent(s) as the secondary owner, as opposed to simply the parent(s) being the owner? A quick read of the document you linked didnt say anything on that.
I tought about it for my sittuation, but i really did not have the courage to take that road because i found out following pluses and minuses follow this link
jackcrawfish said:The following works for many (one-size fits most):
In this order:
1) MAX a 529 plan in grandma's name (parent's names as secondary owners; child as beneficiary) 2) MAX a ROTH IRA in parent name (principal contributions can be withdrawn tax/penalty free)
There are some real pitfalls with this advice. Having grandma be the owner means that it is grandma's money. She has the ability to do anything that she wants with the money. If she gets old and cranky, she may decide that she's not giving the money to the grandaughter. Unless the money is only being used for senior year, having grandma own the account is actually detrimental to financial aid. It's true that it won't be counted as an asset, but when the money is actually used, it will typically be treated as income for the student. Income is typically a bigger part of the aid picture than assets.
The problem with using a Roth IRA is that by using the principal, you'll be losing out on decades of tax free growth.
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