Author Topic: 15 yo kid has a roth ira  (Read 7822 times)

A Fella from Stella

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15 yo kid has a roth ira
« on: June 21, 2019, 02:56:00 PM »
This is so cool (MMM, I mean) that there is a place to talk about kids and money.

Want to share this great story about a dad who got his kid off to a good start.

https://wealthyjoeinvesting.com/2017/11/18/guest-post-is-15-too-young-by-chris-pascale/

buddhapeace1

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Re: 15 yo kid has a roth ira
« Reply #1 on: June 21, 2019, 03:19:53 PM »
I started my son with a Roth when he was 17. My deal with him is that I will match all of his contributions until he is out of college. He is 21 now and has about $6,000 in his Vanguard Target Retirement fund. He doesn't have much to save as a working college student, but it is a great way to learn about investing, long-term savings, and get the most out of compounding interest! He was also happy to learn that he could use the money someday for a down payment for a house if he wanted. I hope he lets it sit, but it's his money and I'm happy I was able plant the seed for him.

Buffaloski Boris

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Re: 15 yo kid has a roth ira
« Reply #2 on: June 21, 2019, 03:37:22 PM »
15 y.o.? Really? That old?

Game on. 😁

GizmoTX

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Re: 15 yo kid has a roth ira
« Reply #3 on: June 21, 2019, 05:37:11 PM »
We started DS with a Roth IRA when he started working summers in HS, probably 15. We matched his earnings because they were relatively small and he couldn't yet bear the idea of his money tied up for decades. It helped him to know that he could withdraw the contributions but of course we advised him that would impact the compounding. We stopped the match with his college internships because they paid well over the IRA limit, which he contributed every year. He's now 25 & using his Roth as an options trading account.

A Fella from Stella

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Re: 15 yo kid has a roth ira
« Reply #4 on: June 25, 2019, 04:40:11 AM »
15 y.o.? Really? That old?

Game on. 😁

Haha, if you wanna go, let's go!

On another note, my daughter will be 14 this summer and will be getting working papers. A local business already offered her a gig helping with children's birthday parties.

Chris Pascale

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Re: 15 yo kid has a roth ira
« Reply #5 on: October 02, 2019, 08:01:08 AM »
My second daughter (14) got her working papers, then a job, and now has her Roth going.

trashtalk

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Re: 15 yo kid has a roth ira
« Reply #6 on: October 14, 2019, 08:09:02 PM »
I've read that you can fully fund (to the max) an IRA so long as the kid has basically *any* taxable income in his/her own name in a taxable year.

Kid makes $1800 in a summer, the government doesn't mind if she puts $6500 in a Roth IRA that year, the source is irrelevant to them.

Is this true?

YttriumNitrate

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Re: 15 yo kid has a roth ira
« Reply #7 on: October 14, 2019, 08:32:27 PM »
I've read that you can fully fund (to the max) an IRA so long as the kid has basically *any* taxable income in his/her own name in a taxable year.
Kid makes $1800 in a summer, the government doesn't mind if she puts $6500 in a Roth IRA that year, the source is irrelevant to them.
Is this true?

No. First, the limit for those under 50 is $6000 in 2019 not $6500. Second, it is incorrect because:

Quote
For 2019, your total contributions to all of your traditional and Roth IRAs cannot be more than:
    $6,000 ($7,000 if youíre age 50 or older), or
    your taxable compensation for the year, if your compensation was less than this dollar limit.
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

ReadySetMillionaire

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Re: 15 yo kid has a roth ira
« Reply #8 on: October 18, 2019, 08:34:25 AM »
I started my son with a Roth when he was 17. My deal with him is that I will match all of his contributions until he is out of college. He is 21 now and has about $6,000 in his Vanguard Target Retirement fund. He doesn't have much to save as a working college student, but it is a great way to learn about investing, long-term savings, and get the most out of compounding interest! He was also happy to learn that he could use the money someday for a down payment for a house if he wanted. I hope he lets it sit, but it's his money and I'm happy I was able plant the seed for him.

Absolutely love this idea.  Rewards saving at a young age, and he will develop an excellent savings habit as a result.  Oh, and those compound returns will look really nice when he's 50.

trollwithamustache

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Re: 15 yo kid has a roth ira
« Reply #9 on: October 18, 2019, 11:14:49 AM »
I started my son with a Roth when he was 17. My deal with him is that I will match all of his contributions until he is out of college. He is 21 now and has about $6,000 in his Vanguard Target Retirement fund. He doesn't have much to save as a working college student, but it is a great way to learn about investing, long-term savings, and get the most out of compounding interest! He was also happy to learn that he could use the money someday for a down payment for a house if he wanted. I hope he lets it sit, but it's his money and I'm happy I was able plant the seed for him.

Absolutely love this idea.  Rewards saving at a young age, and he will develop an excellent savings habit as a result.  Oh, and those compound returns will look really nice when he's 50.

We do this as well.

Chris Pascale

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Re: 15 yo kid has a roth ira
« Reply #10 on: October 19, 2019, 11:42:42 PM »
I started my son with a Roth when he was 17. My deal with him is that I will match all of his contributions until he is out of college. He is 21 now and has about $6,000 in his Vanguard Target Retirement fund. He doesn't have much to save as a working college student, but it is a great way to learn about investing, long-term savings, and get the most out of compounding interest! He was also happy to learn that he could use the money someday for a down payment for a house if he wanted. I hope he lets it sit, but it's his money and I'm happy I was able plant the seed for him.

Absolutely love this idea.  Rewards saving at a young age, and he will develop an excellent savings habit as a result.  Oh, and those compound returns will look really nice when he's 50.

Just finished reading The Latte Factor with my older girls. When we were done I offered them the choice of $20 in cash, $25 to their savings accounts, or $30 to their Roths.

"I feel like I have to choose the Roth," one said, to which the other agreed.

WARNING: This is not a good book. It's a finance book trying to be a novel. We got through it by laughing at how dumb it was at some points. However, it's short enough to tolerate, and in the end, my girls seemed to have added a brick to the foundation of their financial knowledge when we were done.

MasterStache

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Re: 15 yo kid has a roth ira
« Reply #11 on: October 20, 2019, 06:39:53 AM »
I opened a Custodial Roth for both of my kids about 2 years ago. They are 15 (son) and 9 (daughter) now. It's kind of funny to watch. My 15 year old absolutely hates saving money. About a year ago I made them both and offer that I would instantly double any money they choose to invest. My son still didn't want to save any money. We pretty much have to force him to save. I'll cut him slack because he is on the Autism spectrum. My daughter on the other hand, has been saving everything. She gets a dollar she gives it to me. I helped her clean up her unused dollhouse the other day and sold it on Craigslist for $60. She gave me all the money to invest. She loves watching her money grow.

I'll readily admit my siblings and I are complete opposites when it comes to finances as well.

maustache

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Re: 15 yo kid has a roth ira
« Reply #12 on: October 21, 2019, 03:16:33 PM »
Don't you need earned income for any kind of IRA other than spousal?

Chris Pascale

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Re: 15 yo kid has a roth ira
« Reply #13 on: November 20, 2019, 03:53:44 PM »
Don't you need earned income for any kind of IRA other than spousal?

Yes. Roth is post-tax earned income. Sometimes little kids do earn money and report it on a tax return. For mine, we did it with their first real jobs that came with paychecks.

robartsd

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Re: 15 yo kid has a roth ira
« Reply #14 on: November 20, 2019, 04:03:00 PM »
The ability to put earned income in a Roth IRA is one reason I think I'd give kids (we don't have any) opportunities to earn money rather than give them an allowance. I haven't yet had anyone with actual parenting experience think this is a good idea. One counter argument is that the kids would only do chores that they get paid for.

Chris Pascale

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Re: 15 yo kid has a roth ira
« Reply #15 on: December 11, 2019, 09:00:56 PM »
The ability to put earned income in a Roth IRA is one reason I think I'd give kids (we don't have any) opportunities to earn money rather than give them an allowance. I haven't yet had anyone with actual parenting experience think this is a good idea. One counter argument is that the kids would only do chores that they get paid for.

I think it's a good idea. There's some room for work outside the house, such as babysitting, yard cleanup, etc.

EricEng

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Re: 15 yo kid has a roth ira
« Reply #16 on: December 20, 2019, 11:49:26 AM »
The ability to put earned income in a Roth IRA is one reason I think I'd give kids (we don't have any) opportunities to earn money rather than give them an allowance. I haven't yet had anyone with actual parenting experience think this is a good idea. One counter argument is that the kids would only do chores that they get paid for.
You still have to be careful.  Household chores do not count for taxes or roth, even if you (parent) pays them.  It has to be real pay for work done for a business or something outside the home (ie: mowing neighbor's lawns).
http://tomcopelandblog.com/dont-count-chores-when-hiring-your-own-children
https://www.kiplinger.com/article/saving/T046-C002-S001-roth-rules-for-kids.html
Lot of paperwork and audit risk for small gain at young.  I wouldn't bother until kids are 15-16 working a job that provides a w-2.

trashtalk

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Re: 15 yo kid has a roth ira
« Reply #17 on: December 20, 2019, 12:04:44 PM »
The ability to put earned income in a Roth IRA is one reason I think I'd give kids (we don't have any) opportunities to earn money rather than give them an allowance. I haven't yet had anyone with actual parenting experience think this is a good idea. One counter argument is that the kids would only do chores that they get paid for.
You still have to be careful.  Household chores do not count for taxes or roth, even if you (parent) pays them.  It has to be real pay for work done for a business or something outside the home (ie: mowing neighbor's lawns).
http://tomcopelandblog.com/dont-count-chores-when-hiring-your-own-children
https://www.kiplinger.com/article/saving/T046-C002-S001-roth-rules-for-kids.html
Lot of paperwork and audit risk for small gain at young.  I wouldn't bother until kids are 15-16 working a job that provides a w-2.

Thanks for these links, especially the first one. Much appreciated.

robartsd

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Re: 15 yo kid has a roth ira
« Reply #18 on: December 20, 2019, 12:27:05 PM »
The ability to put earned income in a Roth IRA is one reason I think I'd give kids (we don't have any) opportunities to earn money rather than give them an allowance. I haven't yet had anyone with actual parenting experience think this is a good idea. One counter argument is that the kids would only do chores that they get paid for.
You still have to be careful.  Household chores do not count for taxes or roth, even if you (parent) pays them.  It has to be real pay for work done for a business or something outside the home (ie: mowing neighbor's lawns).
http://tomcopelandblog.com/dont-count-chores-when-hiring-your-own-children
https://www.kiplinger.com/article/saving/T046-C002-S001-roth-rules-for-kids.html
Lot of paperwork and audit risk for small gain at young.  I wouldn't bother until kids are 15-16 working a job that provides a w-2.
The link you provided that references case law is about parents claiming that children doing household chores was a business expense (I would argue that cleaning performed in a part of the home used primarily for business use should count, but other household chores should not). The second link states "giving your child an allowance in return for doing chores around the house doesn't count as earned income." I would not provide any allowance, but I might have some jobs that can be done for pay (I might also have some chores that need to be done before they are allowed to do the paid jobs). I would likely have the child claim the payment as self employment income (subject to FICA taxes if over $400/yr). It would have zero impact on my taxes, but provide the child with earned income allowing access to IRA contributions. As long as you can prove that the earnings were realistic for the work performed, the IRS won't rule that the child did not earn the money - just imagine a tax judge telling a kid that the money he got for mowing a lawn isn't earned because the lawn was owned by the kid's parents.

startingsmall

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Re: 15 yo kid has a roth ira
« Reply #19 on: January 05, 2020, 07:52:35 PM »
When I got my first summer job at 16 years old, my dad started a Roth for me. Unbeknownst to me, he made an annual contribution matching my annual earnings. When I graduated from veterinary school, he sent me the most recent copy of the Vanguard statement along with a handwritten note about Roth IRA's and how they work, emphasizing the current balance, talking about what it would be worth at 65 if I just left it untouched, and ending with "In other words, DON'T SPEND THE MONEY." 

I plan on doing the same thing for our daughter.

trashtalk

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Re: 15 yo kid has a roth ira
« Reply #20 on: January 05, 2020, 08:05:30 PM »
When I got my first summer job at 16 years old, my dad started a Roth for me. Unbeknownst to me, he made an annual contribution matching my annual earnings. When I graduated from veterinary school, he sent me the most recent copy of the Vanguard statement along with a handwritten note about Roth IRA's and how they work, emphasizing the current balance, talking about what it would be worth at 65 if I just left it untouched, and ending with "In other words, DON'T SPEND THE MONEY." 

I plan on doing the same thing for our daughter.

Your dad is dad goals.

BostonBrit

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Re: 15 yo kid has a roth ira
« Reply #21 on: January 06, 2020, 08:23:15 AM »
I just wanted to check that I'm correct in thinking that there is no product in the US that is equivalent to a Junior SIPP (e.g. here is a Fidelity version https://www.fidelity.co.uk/junior-sipp/)?

It's essentially a 401k for kids all-be-it with a much lower limit (~$5kpa).

My understanding was that no such product existed in the US but wanted to check.



secondcor521

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Re: 15 yo kid has a roth ira
« Reply #22 on: January 06, 2020, 12:01:22 PM »
I just wanted to check that I'm correct in thinking that there is no product in the US that is equivalent to a Junior SIPP (e.g. here is a Fidelity version https://www.fidelity.co.uk/junior-sipp/)?

It's essentially a 401k for kids all-be-it with a much lower limit (~$5kpa).

My understanding was that no such product existed in the US but wanted to check.

There doesn't seem to be a direct analog.

In the US, if a kid (or anyone, pretty much) has earned income, they can contribute that amount to an IRA, up to $6,000 per year.  The money grows tax-free inside the IRA.  If the person contributes to a traditional IRA and has low enough income, they can deduct that contribution from their income that year, which sort of works like the UK 25% matching.  There is also a retirement savings tax credit, which is between 10% and 50% of the contribution back as a non-refundable tax credit, but your income has to be low-ish (below $32K in 2019 for a single) to qualify for that.

BostonBrit

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Re: 15 yo kid has a roth ira
« Reply #23 on: January 06, 2020, 01:16:16 PM »
I just wanted to check that I'm correct in thinking that there is no product in the US that is equivalent to a Junior SIPP (e.g. here is a Fidelity version https://www.fidelity.co.uk/junior-sipp/)?

It's essentially a 401k for kids all-be-it with a much lower limit (~$5kpa).

My understanding was that no such product existed in the US but wanted to check.

There doesn't seem to be a direct analog.

In the US, if a kid (or anyone, pretty much) has earned income, they can contribute that amount to an IRA, up to $6,000 per year.  The money grows tax-free inside the IRA.  If the person contributes to a traditional IRA and has low enough income, they can deduct that contribution from their income that year, which sort of works like the UK 25% matching.  There is also a retirement savings tax credit, which is between 10% and 50% of the contribution back as a non-refundable tax credit, but your income has to be low-ish (below $32K in 2019 for a single) to qualify for that.

Apologies - the analogue for the Roth IRA is a junior ISA (https://www.fidelity.co.uk/junior-isa/).
The analogue for a 401k is a SIPP.

On both of these you can open them at birth in the UK irrespective of if the kids has any income.

On the junior SIPP, the parent puts in 2,880 per year and on day one that gets topped up by the government to 3,600 ($4,680). This then grows as a tax deferred asset (25% can be taken tax free from 55) and you pay tax as an income is taken from the product (similar to a 401k).

On the junior ISA, the parent puts in 4,368 per year $5,680. This is then invested and transfers to the kid at 18 (or can be converted into an adult ISA which has a much higher limit). The investment grows income/capital  tax free.

Assuming the kids have no income, it appears that there's little in terms of investments one can do directly for young children (e.g. under 10) who do not earn an income.

Thanks

robartsd

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Re: 15 yo kid has a roth ira
« Reply #24 on: January 06, 2020, 01:29:35 PM »
I just wanted to check that I'm correct in thinking that there is no product in the US that is equivalent to a Junior SIPP (e.g. here is a Fidelity version https://www.fidelity.co.uk/junior-sipp/)?

It's essentially a 401k for kids all-be-it with a much lower limit (~$5kpa).

My understanding was that no such product existed in the US but wanted to check.
I'm pretty sure you're right, the US has no accounts to save for a child's retirement other than the child's own access to retirement accounts as an earner. In the case of the dad above, there is no reason the dad can't match the kid's earned income as a gift. Since the parent has a legal role as a conservator of their minor children's assets, the dad can use the money he gave his child to make the IRA contribution for them. The example did step afoul of the law in one way - the dad should have transferred control of the account when he lost legal claim to being the child's conservator at the child's 18th birthday.

I believe the only accounts we have to save for a child's future are 529 education savings plans.

EricEng

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Re: 15 yo kid has a roth ira
« Reply #25 on: January 07, 2020, 03:30:46 PM »
The link you provided that references case law is about parents claiming that children doing household chores was a business expense (I would argue that cleaning performed in a part of the home used primarily for business use should count, but other household chores should not). The second link states "giving your child an allowance in return for doing chores around the house doesn't count as earned income." I would not provide any allowance, but I might have some jobs that can be done for pay (I might also have some chores that need to be done before they are allowed to do the paid jobs). I would likely have the child claim the payment as self employment income (subject to FICA taxes if over $400/yr). It would have zero impact on my taxes, but provide the child with earned income allowing access to IRA contributions. As long as you can prove that the earnings were realistic for the work performed, the IRS won't rule that the child did not earn the money - just imagine a tax judge telling a kid that the money he got for mowing a lawn isn't earned because the lawn was owned by the kid's parents.
It doesn't matter if you don't call it allowance or  instead "pay" for chores.
https://www.deseret.com/2000/4/23/19503328/chore-money-not-eligible-for-roth-ira
Chores for personal home maintenance do not count for Roth qualification.
https://fairmark.com/retirement/roth-accounts/contributions-to-roth-accounts/roth-iras-for-minors/
Quote
When the compensation wasnít a reasonable payment for work actually performed or didnít relate to a business, the deduction wasnít allowed. Bogus compensation wonít support a contribution to a Roth IRA, either.

Unless the "paid jobs" you do are for an business that has real income you are risking an audit. 
If you are serious and want to do the paperwork right you'd need to follow this guide.
https://www.marottaonmoney.com/fund-your-childs-roth-with-chore-income/

robartsd

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Re: 15 yo kid has a roth ira
« Reply #26 on: January 07, 2020, 05:37:34 PM »
If you are serious and want to do the paperwork right you'd need to follow this guide.
https://www.marottaonmoney.com/fund-your-childs-roth-with-chore-income/
This guide sounds exactly like what I was thinking.

Camarillo Brillo

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Re: 15 yo kid has a roth ira
« Reply #27 on: February 01, 2020, 10:15:39 AM »
I just stumbled found this forum and saw this thread. 

Both of my son's established Roth IRA's when they were 16.  The older one is now 21 and the younger one turns 18 in a month.  Our deal is that I will match the amount they save in their regular account, and I will  deposit my match into their Roth's.  Every year they exceeded the Roth max, so I had been putting in $5,500, and this year I put in $6,000.

We regularly talk about about the power of compounded growth, the importance of saving, and investment strategy.  I think the older boy's Roth is nearing $25K and the younger one's is at almost $15K.

But, what's really cool is that they each manager their own brokerage accounts.  They save nearly every cent they make and they invest in companies that they 'know'.  They each work as IT techs during school breaks, so that means they buy mainly tech stocks.  Last Wed they each were extremely excited to see some huge gains. The older boy yelled out 'hey, I made $1,700 today without even working', and the younger one then checked his account and saw he made over $700 : - )

The older one is on track to have over $100k  when he graduates, and I think the younger one will do even better than that.

I know that a lot of people disagree with just giving kids money, but they're going to get a huge hunk when I kick the bucket, so I'd prefer to have some of that in their retirement accounts, growing tax free.

Chris Pascale

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Re: 15 yo kid has a roth ira
« Reply #28 on: February 19, 2020, 08:44:32 PM »

I know that a lot of people disagree with just giving kids money, but they're going to get a huge hunk when I kick the bucket, so I'd prefer to have some of that in their retirement accounts, growing tax free.

The fear is when it comes from examples where the kids don't save their own money, or make anything. And then there's the situations like in The Millionaire Next Door books, where the children of millionaires are dependent upon extra influxes from mom and dad.

Your kids sound extraordinary.

Do you have any examples of any giving they've done? I imagine it's a shock when they find out that the personally-life-saving amounts they have won't do much for cancer research.

Last year, my girls wanted to donate to a hospital where one of them had been treated. My youngest, wanting to out-do the older girls, pulled out $101 dollars (rolled up in a rubber band like she's Hector Salamanca) and handed it over.

We had been talking about how $20 would be a very nice gift, but when she found out that big sister was giving $50, she felt compelled to be more generous.