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Learning, Sharing, and Teaching => Mini Money Mustaches => Topic started by: gpyros85 on May 28, 2018, 09:40:07 AM

Title: Roth IRA for 8 year old
Post by: gpyros85 on May 28, 2018, 09:40:07 AM
Hello all, I would like to help my 8 year old open a Roth IRA. The money first deposited will be $500. This will be from savings doing chores around the house and selling candies.

What are my options?
Title: Re: Roth IRA for 8 year old
Post by: Dicey on May 28, 2018, 10:42:49 AM
Don't think an allowance counts... If your kid is selling enough "candies" to have sufficient income to fund a Roth, I'd love to hear the details. I'd also like to know they have a business license and parents fluent in child labor laws.
Title: Re: Roth IRA for 8 year old
Post by: ixtap on May 28, 2018, 10:48:27 AM
Chores are expressly forbidden.
Title: Re: Roth IRA for 8 year old
Post by: MDM on May 28, 2018, 10:54:35 AM
See Where to start a child's Roth IRA with very low income? (https://forum.mrmoneymustache.com/investor-alley/where-to-start-a-child's-roth-ira-with-very-low-income/msg455246/#msg455246) and How to Setup a Roth IRA for a child? (https://forum.mrmoneymustache.com/investor-alley/how-to-setup-a-roth-ira-for-a-child/msg1917883/#msg1917883) for more.

Are you prepared to file and pay self-employment tax for your child?
Title: Re: Roth IRA for 8 year old
Post by: gpyros85 on May 28, 2018, 05:27:36 PM
Don't think an allowance counts... If your kid is selling enough "candies" to have sufficient income to fund a Roth, I'd love to hear the details. I'd also like to know they have a business license and parents fluent in child labor laws.

He buys in Mexico and sells locally, we live in border city, most people want to have the candies fresh. It is nothing different than what the school fund raisers require every year! We go to Sam's Club in Mexico (I purchase the candies) he sells. he typically makes $25-$40 every time he goes out around the block. If he had the expenses of purchasing the candy it would probably be more like $15-$25/profit. It is more for him to learn selling and he does very well at it. I left him keep the profits.

No different than newspaper boys back 30 years ago.
Title: Re: Roth IRA for 8 year old
Post by: gpyros85 on May 28, 2018, 05:30:15 PM
It would seem the best option is for him to keep banking the money and when he reaches 15-16 and can get some W2 wage income then he can start depositing the money. Otherwise, I could open him a taxable account (S&P Index exposure) now then when he reaches W2 age he can shift the money to Roth IRA with the $5,500 limit.
Title: Re: Roth IRA for 8 year old
Post by: Dicey on May 28, 2018, 11:09:11 PM
It would seem the best option is for him to keep banking the money and when he reaches 15-16 and can get some W2 wage income then he can start depositing the money. Otherwise, I could open him a taxable account (S&P Index exposure) now then when he reaches W2 age he can shift the money to Roth IRA with the $5,500 limit.
First, thanks for the details. I think flying under the radar for as long as possible is a good plan. Also, at some point he should start buying his own inventory. It's good business experience.

Otherwise, your quote above seems like a pretty solid plan.
Title: Re: Roth IRA for 8 year old
Post by: gpyros85 on May 29, 2018, 03:15:48 AM
Agreed! I just didnít think he would make much at first! It is actually good demand doing what he does with websites dedicated to fresh Mexican candies.
Title: Re: Roth IRA for 8 year old
Post by: dcozad999 on May 29, 2018, 07:44:26 AM
It would seem the best option is for him to keep banking the money and when he reaches 15-16 and can get some W2 wage income then he can start depositing the money. Otherwise, I could open him a taxable account (S&P Index exposure) now then when he reaches W2 age he can shift the money to Roth IRA with the $5,500 limit.


This sounds like a good plan.
Title: Re: Roth IRA for 8 year old
Post by: malacca on June 01, 2018, 05:21:32 AM
It has to be earned income. Even a small business is a grey area (should be licensed, taxed, etc.).

I once met a financial advisor who had a bunch of American English teachers in Japan as clients.

For years he had them max out their ROTHs. He shit bricks when I sent him the IRS ruling on earned income. The English teachers had deducted all of their income as they were overseas and earned less than 105K. IRS ruled they had no earned income.

They had to undo all of those ROTHs and pay penalties.


That said, my kids earned some money this year modeling! My CPA said good to go on a ROTH with those earnings!

Title: Re: Roth IRA for 8 year old
Post by: wearfannypacks on June 25, 2018, 08:50:55 AM
Couldn't he file a business tax return to prove earned income? Then you can invest that income?