Author Topic: Question: Can max my Roth and contribute to custodial Roths?  (Read 2902 times)

nyxst

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Question: Can max my Roth and contribute to custodial Roths?
« on: February 12, 2014, 02:34:48 PM »
I would like to open a Roth for each of my kids and contribute to them, but can I do that if I have maxed my own Roth?  If not, is there an alternate option that has a tax shelter?

Undecided

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Re: Question: Can max my Roth and contribute to custodial Roths?
« Reply #1 on: February 12, 2014, 02:38:01 PM »
Your Roth IRA has nothing to do with your kids' Roth IRAs. However, your kids can only fund IRAs to the extent they have earned income.

nyxst

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Re: Question: Can max my Roth and contribute to custodial Roths?
« Reply #2 on: February 12, 2014, 02:42:01 PM »
Ok, so my oldest would be the only one that qualifies.  Thank you!

nyxst

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Re: Question: Can max my Roth and contribute to custodial Roths?
« Reply #3 on: February 12, 2014, 02:53:19 PM »
Is there a tax sheltered option that I could start a little investment account for my eight year old and four year old?

Undecided

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Re: Question: Can max my Roth and contribute to custodial Roths?
« Reply #4 on: February 12, 2014, 02:56:23 PM »
Is there a tax sheltered option that I could start a little investment account for my eight year old and four year old?

Maybe a 529 if you expect to assist them with educational expenses? Contributions are deductible for federal taxes, but may be for your state, and the investment grows tax free and withdrawals can be made tax free if used for qualifying expenses.

seattlecyclone

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Re: Question: Can max my Roth and contribute to custodial Roths?
« Reply #5 on: February 12, 2014, 03:20:37 PM »
A 529 account is a good bet if you expect your kids to go to college and want to help them with that. All earnings are tax free if the proceeds are used for college-related expenses.

Another option is an UTMA account. This is a brokerage account in your kid's name, but you make the investment and withdrawal decisions until your kids reach a certain age (often 18 or 21, but I think it varies by state). This isn't as good of a long-term tax shelter as the 529 account, but it does have some attractive properties. Each kid gets $2k of investment income taxed at normal single person rates (typically 0% for long-term gains and qualified dividends). Past that, the "kiddie tax" can kick in, whereby the kid would owe tax on the income at the same rate as if the parent had earned it instead. See this handy page for more info. One strategy might be to transfer enough appreciated stock into the account each year that you can sell it and realize a $2k gain. By paying 0% on this gain instead of 15%, you could save $300 per year per kid on your taxes.

Do be aware that any funds you transfer to an UTMA account legally belong to the kid. Any money you (as the custodian) withdraw from the account is supposed to be used for the kid's benefit, and not on things that you (as the parent) are legally required to provide to your kid. So you can't spend the money on your mortgage or groceries or medical bills, but summer camps, music lessons, birthday presents, and other things that go above and beyond the basics would probably be okay.

Cheddar Stacker

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Re: Question: Can max my Roth and contribute to custodial Roths?
« Reply #6 on: February 12, 2014, 03:40:47 PM »
My understanding is that you can only contribute to an IRA if you have earned income (an exception is made for stay-at-home spouses). So if your kids have jobs you can contribute to a Roth in their name up to their income or $5500 whichever is lower

Maybe his kids are stay at home spouses? That could work too I guess.

Cheddar Stacker

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Re: Question: Can max my Roth and contribute to custodial Roths?
« Reply #7 on: February 12, 2014, 03:41:25 PM »
Is there a tax sheltered option that I could start a little investment account for my eight year old and four year old?

I don't have an HSA, but does this fit? Are HSA's for the entire family, or can you have one for each kid as well?

phred

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Re: Question: Can max my Roth and contribute to custodial Roths?
« Reply #8 on: February 12, 2014, 05:15:49 PM »
HSAs are for the entire family unless you just want the individual plan for yourself.  The contribution limits are different depending on individual or family