Author Topic: Roth IRA for a teenager  (Read 1405 times)

Frugalicious

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Roth IRA for a teenager
« on: June 10, 2017, 05:13:13 AM »
My daughter is 17 and has just received her first pay check from her part time job.  We would like to open a Roth IRA for her, but it looks like Vanguard and Fidelity don't allow it until she is 18.  Do any of you know of a brokerage firm that will allow us to do it now?  Or is she better off accumulating the money for the next year and then opening the account?  Thanks.

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Gin1984

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Re: Roth IRA for a teenager
« Reply #1 on: June 10, 2017, 06:01:02 AM »
I don't know about vanguard but fidelity does allow for custodial Roth IRAs.

sparkytheop

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Re: Roth IRA for a teenager
« Reply #2 on: June 10, 2017, 06:22:54 AM »
When will she turn 18?  I've been happy with Vanguard, and had my son open an account with them (he was 19 though).  If she will turn 18 before April 15, 2018, she can save the money and then deposit it into a Roth before the tax date, and it will count for her 2017 contributions.

Otherwise, they do have Custodial Roth IRAs there as well.  Just make sure she's earned $1k before opening one, since that is the minimum (I believe... you would need to verify).

radram

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Re: Roth IRA for a teenager
« Reply #3 on: June 10, 2017, 07:03:41 AM »
My daughter is 17 and has just received her first pay check from her part time job.  We would like to open a Roth IRA for her, but it looks like Vanguard and Fidelity don't allow it until she is 18.  Do any of you know of a brokerage firm that will allow us to do it now?  Or is she better off accumulating the money for the next year and then opening the account?  Thanks.

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Just go to your bank. My daughter started a ROTH at 16 at our credit union. Earning crap for now, but will allow for an easy rollover at 18. I would not wait, since it is a use it or lose it proposition.

Laura33

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Re: Roth IRA for a teenager
« Reply #4 on: June 10, 2017, 08:35:31 AM »
You can do it at Vanguard, just not online -- I called to ask, and they sent me the forms.  The bigger issue is the minimum balance required for their funds other than the money market, but I think you can buy ETFs.
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MDM

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Re: Roth IRA for a teenager
« Reply #5 on: June 10, 2017, 08:56:11 AM »
The magic word is "custodial."  Fidelity, Schwab, and Vanguard will all do this.

See Where to start a child's Roth IRA with very low income?.

High Income Parent

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Re: Roth IRA for a teenager
« Reply #6 on: June 12, 2017, 09:40:51 PM »
We opened one with my 15 year old at Schwab when he started getting a paycheck. The minimum was $100 and he gets access to over a hundred free ETFs so commissions don't cut into the investing.

I actually wrote a blog post about it if you want more info but the link above will also give you all the information you need. That's great that you are already getting her thinking about investing and retirment savings.

Tom @ HIP

milliemchi

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Re: Roth IRA for a teenager
« Reply #7 on: June 13, 2017, 07:17:38 AM »
I opened one for my 9yo and now for my 5yo at Vanguard. There was no minimum, but you effectively have to buy ETFs instead of funds, because the funds have a minimum. I didn't see much difference between the two. You have to do it off-line, call and they'll send you the forms. It's really easy. The accounts will show in your Vanguard account, and you can also create a login for the kid that has very little control over the account - mostly for viewing balance, etc. I pay my kids a few $$ here and there for non-chore tasks, and it slowly adds up.

Beriberi

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Re: Roth IRA for a teenager
« Reply #8 on: June 13, 2017, 11:59:49 AM »
Do you pay FICA or SSI on the money you give your kids and give them a W-2?  Do they file taxes? Just curious how you are documenting income so that they qualify for a Roth.

milliemchi

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Re: Roth IRA for a teenager
« Reply #9 on: June 13, 2017, 12:16:03 PM »
Do you pay FICA or SSI on the money you give your kids and give them a W-2?  Do they file taxes? Just curious how you are documenting income so that they qualify for a Roth.

I keep an Excel file with the amounts they were paid and jobs they were paid for, in case we get audited. The IRS does not care about the $100/year I pay my kids, but I like to follow the rules and eliminate any future stress. The pay has to be market rate, so you can't pay them $100 to water the flowers once, but I did pay my daughter $8 to water the plants for a month.

I treat the kids as independent contractors, as one would treat a plumber. I pay them cash, and it's their responsibility to pay any tax and file any forms (which I would file for them). Under $400/year, no filing is necessary and no tax is due.

I also had a deal with my daughter that her earnings would go into the Roth IRA, and I would match her earnings 50%. Recently, I've upped the match to 100% for small jobs, and upped her hourly rate from $6/h which seemed fair for unskilled child labor that requires supervision, to $8-10/h. The money just grew painfully slow otherwise.  She was making well under $100/year, and seeing only half of that in cash, and that did not teach the right lessons. I don't pay for chores, only for stuff average households might outsource, so she doesn't have too many opportunities to earn - I might as well pay a bit more.

ixtap

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Re: Roth IRA for a teenager
« Reply #10 on: June 13, 2017, 12:21:47 PM »
Do you pay FICA or SSI on the money you give your kids and give them a W-2?  Do they file taxes? Just curious how you are documenting income so that they qualify for a Roth.

I keep an Excel file with the amounts they were paid and jobs they were paid for, in case we get audited. The IRS does not care about the $100/year I pay my kids, but I like to follow the rules and eliminate any future stress. The pay has to be market rate, so you can't pay them $100 to water the flowers once, but I did pay my daughter $8 to water the plants for a month.

I treat the kids as independent contractors, as one would treat a plumber. I pay them cash, and it's their responsibility to pay any tax and file any forms (which I would file for them). Under $400/year, no filing is necessary and no tax is due.

I also had a deal with my daughter that her earnings would go into the Roth IRA, and I would match her earnings 50%. Recently, I've upped the match to 100% for small jobs, and upped her hourly rate from $6/h which seemed fair for unskilled child labor that requires supervision, to $8-10/h. The money just grew painfully slow otherwise.  She was making well under $100/year, and seeing only half of that in cash, and that did not teach the right lessons. I don't pay for chores, only for stuff average households might outsource, so she doesn't have too many opportunities to earn - I might as well pay a bit more.

Average households outsource plant watering? You aren't even being honest with yourself.

milliemchi

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Re: Roth IRA for a teenager
« Reply #11 on: June 13, 2017, 01:21:32 PM »
Average households outsource plant watering? You aren't even being honest with yourself.

Not 'plant watering', but 'lawn maintenance'. Plus we were growing some herbs that needed some minilmal maintenance. At 9, she can water flowers (garden), at 15 she can mow lawns. Other jobs she had were giving me a haircut, getting some PDF files organized with a table of contents for me (I didn't want to spend 2-3h doing that, and it taught her some skills), car washing, housecleaning in my room (that's my job that I'm outsourcing to her), but nor elsewhere in the apartment (that's a chore that she needs to contribute toward), maintaining bicycles in top condition (tires etc.), personal shopping (I give her a box of what I need more of and have her google for the cheapest price+shipping, that's a very low hourly rate), washing the fridge (big job that I was quoted and paid $10 for 10 years ago), mending my clothes, but not hers, and a couple of hours of mother's helping here and there. I paid my 5 year old a few bucks to sort and organize $150 worth of LEGO DUPLOs for sale. Some of the little stuff I pay to Roth IRA, because it was money earned (because some houses pay kids for chores), but I don't match (because our house does not pay kids for chores).  Generally, I try to pay for stuff that I'm responsible for, and not pay for stuff they are responsible for. This will obviously change with time.

I'm actually really struggling to come up with things that kids could be doing that they should also be paid for. I am absolutely not paying for taking out garbage, etc., so I sit and think and think "what could be a job she could do?" Doing haircuts is a good one, but I only need it a couple of times a year. Also, everybody else I know outsources housekeeping, so that would be a good one, except that the reason we don't do it is that we believe people should be responsible for their own space. So I can only pay her for keeping up the space that she doesn't use, which is my room. It gets really contorted if you try to do it right and keep it logical and consistent, but the good news is that the IRS does not care about the small change. This whole exercise was about teaching the value of work, rather than saving for retirement.

Future plans involve teaching dad to swim (she was on a swim team, and dad is a poor swimmer), and that would be serious bucks (likely $10-15 per hour or per lesson). She also wants to get into jewelry making on Etsy/eBay, which might be harder than she thinks, but we will support the effort.  Another thing she could do is prep and list and package stuff for sale on eBay, for a cut. We have tons of crap that should be sold, but we have no time for that.

If somebody has more ideas on what kids could be paid for, I'm all ears. I've spent good time googling 'jobs for kids' or such a couple of years ago, but that wasn't very useful.

Vindicated

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Re: Roth IRA for a teenager
« Reply #12 on: June 13, 2017, 02:49:58 PM »
This may be useful for coming up with jobs.

Quote
http://lifehacker.com/the-chores-kids-can-do-by-age-group-1689862131
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milliemchi

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Re: Roth IRA for a teenager
« Reply #13 on: June 13, 2017, 03:50:59 PM »
This may be useful for coming up with jobs.

Quote
http://lifehacker.com/the-chores-kids-can-do-by-age-group-1689862131

Great, thanks. Saved for perusal.

Frugalicious

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Re: Roth IRA for a teenager
« Reply #14 on: July 07, 2017, 06:04:58 PM »
Thanks.  I got her set up with Vanguard.  It was relatively painless!  And she's very excited to see her account grow every two weeks.

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