Author Topic: help this dumb guy figure out a kids roth  (Read 1312 times)

kenmoremmm

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help this dumb guy figure out a kids roth
« on: December 31, 2019, 12:37:08 PM »
i've read this thread:
https://www.bogleheads.org/forum/viewtopic.php?t=239408

and several others:
https://forum.mrmoneymustache.com/mini-money-mustaches/retirement-account-for-teen/
https://forum.mrmoneymustache.com/investor-alley/where-to-start-a-child's-roth-ira-with-very-low-income/

i'm still a bit confused on what's okay and what's not because i think people respond in such a way to not explicitly violate an IRS loophole/code. or, maybe i'm just asleep at the wheel/desk.

in any case, here's the situation i have and would like to improve.
- 2 kids (1 and 3 years old)
- no real income (W-2, self employeed, paid by some shell company that we started to create a job for them, etc)
- would like to invest in roth accounts for both of them
- goal is for no paperwork, no need to track "verifiable income" for the next 18 years (and beyond for them), no issues with the IRS questioning their roth contributions some 50 years from now, etc

is the simple answer: just put in $400/yr or less and i'm good to go?
thanks, and sorry for being obtuse on this subject.


MDM

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Re: help this dumb guy figure out a kids roth
« Reply #1 on: December 31, 2019, 12:47:25 PM »
- no real income
End of story there.  No real income = no IRA contribution.

kenmoremmm

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Re: help this dumb guy figure out a kids roth
« Reply #2 on: December 31, 2019, 01:31:16 PM »
- no real income
End of story there.  No real income = no IRA contribution.

understood. however, there are clearly many on this forum and bogleheads that are funding their kids roths, under a certain $ amount, despite no income. they create fake jobs. like gocurrycracker does photo shoots and sells pictures. or one kid is in a magazine (created by parents who opened a cover-business to allow for the roth to be more legit).

cchrissyy

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Re: help this dumb guy figure out a kids roth
« Reply #3 on: December 31, 2019, 01:34:17 PM »
no, the simple answer is save for them in something that is not a roth ira until the time when they truly have earned income.

sparkytheop

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Re: help this dumb guy figure out a kids roth
« Reply #4 on: December 31, 2019, 01:37:50 PM »
Always start with "is this worth an audit?"

At those ages, the only expected real income they could get would be something like modeling/acting, which would be easily proven in an audit.

Otherwise, wait until they are older and can actually perform some sort of work that could provide a legitimate income, and then document (x day, mowed lawns, $y, x day, shoveled snow, $y). 

PDXTabs

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Re: help this dumb guy figure out a kids roth
« Reply #5 on: December 31, 2019, 01:59:52 PM »
understood. however, there are clearly many on this forum and bogleheads that are funding their kids roths, under a certain $ amount, despite no income. they create fake jobs. like gocurrycracker does photo shoots and sells pictures. or one kid is in a magazine (created by parents who opened a cover-business to allow for the roth to be more legit).

many? I don't think that there are many people on this forum creating fake jobs for their kids. If I pay my 12 year old to mow the lawn or clean the bathroom that isn't fake. However, I don't think that the IRS is going to believe that your three year old cleaned the bathroom.

kenmoremmm

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Re: help this dumb guy figure out a kids roth
« Reply #6 on: December 31, 2019, 02:28:17 PM »
understood. however, there are clearly many on this forum and bogleheads that are funding their kids roths, under a certain $ amount, despite no income. they create fake jobs. like gocurrycracker does photo shoots and sells pictures. or one kid is in a magazine (created by parents who opened a cover-business to allow for the roth to be more legit).

many? I don't think that there are many people on this forum creating fake jobs for their kids. If I pay my 12 year old to mow the lawn or clean the bathroom that isn't fake. However, I don't think that the IRS is going to believe that your three year old cleaned the bathroom.

not to split hairs or derail general topic, but i believe your tasks that you suggest paying your 12 YO for are not W-2 wages and would not be allowed to be used to contribute to a Roth. see the original BH post at the start of this thread.

PDXTabs

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Re: help this dumb guy figure out a kids roth
« Reply #7 on: December 31, 2019, 02:56:20 PM »
not to split hairs or derail general topic, but i believe your tasks that you suggest paying your 12 YO for are not W-2 wages and would not be allowed to be used to contribute to a Roth. see the original BH post at the start of this thread.

You don't need to have a W2 to claim earned income. I for example can claim Schedule C self employed income from my cryptocurrency mining. In fact Schedule C self employment might be the easiest way to go in these cases: https://ttlc.intuit.com/community/taxes/discussion/ira-deduction-limit-with-non-w2-income/00/313319

EDITed to add - if my son mows the neighbor's lawn and gets paid for it, and files a schedule C, I would be very very surprised if anything bad happened (the one problem may be his lack of business licensing). The only difference here is that he is mowing my lawn.
« Last Edit: December 31, 2019, 02:58:46 PM by PDXTabs »

MDM

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Re: help this dumb guy figure out a kids roth
« Reply #8 on: December 31, 2019, 03:13:57 PM »
You don't need to have a W2 to claim earned income.
+1

From p. 6 of Contributions to IRAs under What Is Compensation?, "Generally, compensation is what you earn from working."

Quote
EDITed to add - if my son mows the neighbor's lawn and gets paid for it, and files a schedule C, I would be very very surprised if anything bad happened (the one problem may be his lack of business licensing). The only difference here is that he is mowing my lawn.
See Employment Taxes for Household Employees to find (emphasis added) "Household employees include housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employee."

Also, probably no need for an under-18 mower of lawns to file Schedule C because
Quote
Don't withhold or pay social security and Medicare taxes from wages you pay to:
    Your spouse,
    Your child who is under age 21,
    Your parent, unless an exception is met, or
    An employee who is under age 18 at any time during the year, unless performing household work is the employee's principal occupation. If the employee is a student, providing household work isn't considered to be his or her principal occupation.

kenmoremmm

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Re: help this dumb guy figure out a kids roth
« Reply #9 on: December 31, 2019, 03:22:10 PM »
spirit rider, CPA, says this regarding "household work" and W-2's:
https://www.bogleheads.org/forum/viewtopic.php?t=239408#p3744423

Buffaloski Boris

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Re: help this dumb guy figure out a kids roth
« Reply #10 on: December 31, 2019, 10:17:27 PM »
This question begs another question: if you're looking to increase family wealth, why the Roth?  Depending on the state, contributions to a 529 plan may be a better option.   

kenmoremmm

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Re: help this dumb guy figure out a kids roth
« Reply #11 on: December 31, 2019, 11:18:22 PM »
washington state. no state income tax.
529 will hurt against financial aid, should we be able to qualify while early retired.

ender

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Re: help this dumb guy figure out a kids roth
« Reply #12 on: December 31, 2019, 11:27:44 PM »
Just make sure you pay payroll taxes on the money you pay your children.

Like I'm sure most parents that pay their children do. lol.

MoseyingAlong

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Re: help this dumb guy figure out a kids roth
« Reply #13 on: December 31, 2019, 11:44:21 PM »
Just make sure you pay payroll taxes on the money you pay your children.

Like I'm sure most parents that pay their children do. lol.

Actually....if the kids are under 18, you don't have to pay payroll taxes (SS & Medicare) for them.
See
https://www.irs.gov/businesses/small-businesses-self-employed/family-help

zinnie

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Re: help this dumb guy figure out a kids roth
« Reply #14 on: January 01, 2020, 12:01:47 AM »
I'm going to go with: if your 1 year old and 3 year old BABIES don't have earned income, then maybe they shouldn't be contributing to something meant for earned income.

Because, ethics.

ender

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Re: help this dumb guy figure out a kids roth
« Reply #15 on: January 01, 2020, 12:21:26 AM »
Just make sure you pay payroll taxes on the money you pay your children.

Like I'm sure most parents that pay their children do. lol.

Actually....if the kids are under 18, you don't have to pay payroll taxes (SS & Medicare) for them.
See
https://www.irs.gov/businesses/small-businesses-self-employed/family-help

I'm not sure paying a kid to mow the lawn counts as a "family business" though. Or the other criteria needed for this exemption to work.

MDM

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Re: help this dumb guy figure out a kids roth
« Reply #16 on: January 01, 2020, 10:00:21 AM »
I'm not sure paying a kid to mow the lawn counts as a "family business" though. Or the other criteria needed for this exemption to work.

These criteria?
Quote
Don't withhold or pay social security and Medicare taxes from wages you pay to:
    Your spouse,
    Your child who is under age 21,
    Your parent, unless an exception is met, or
    An employee who is under age 18 at any time during the year, unless performing household work is the employee's principal occupation. If the employee is a student, providing household work isn't considered to be his or her principal occupation.