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Can a child who's only earned income is from odd jobs- ie babysitting, lawn mowing, etc. contribute to a Roth IRA?

Thank you for any info.
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Can a child who's only earned income is from odd jobs- ie babysitting, lawn mowing, etc. contribute to a Roth IRA?

Yes, but there is a catch. In order to contribute the full $2000 to the Roth, the child would have to declare at least that amount as self employment income and pay SE tax at 15.3%.

Assuming $2000 as SE income, the SE tax would around $283. Income tax would be negated by the standard deduction (assuming other taxable income is less than $2,500). This also assumes that the child is claimed as a dependent on the parent's return.

It works out much better for children who have regular wages from part-time jobs because SE taxes are not an issue. A child could earn up to $4,500 and pay FICA through withholding at 7.65% and remain tax-exempt for Federal purposes (state taxes may be applicable though). The child can then make a Roth contribution to the lesser of their earned income or $2,000.

Dave
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Parents can pay there kids earned income and its exempt from self employment taxes.
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Yes, but there is a catch. In order to contribute the full $2000 to the Roth, the child would have to declare at least that amount as self employment income and pay SE tax at 15.3%.

Not really. It pays to learn the rules about the tax treatment of domestic employees' wages. For workers under 18, domestic employment is exempt from FICA and Medicare, but it's good old earned income, reported on line 7 of the 1040, and can be used as the basis for an IRA contribution.

The only time SE tax is involved is when one is actually engaged in a trade or business. I'll agree that the line is not always clear, but you can make some good cases that kids are employees, not independent contractors.

Phil Marti

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