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Author: MotherQueen One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75871  
Subject: IRA for 13 yr. old Date: 8/8/1999 3:17 AM
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Hi, my mom told me to write. I usually make atleast $50 a week babysitting and thought that maybe I should consider an IRA. I have called several brokerage houses and mutual fund companies but they won't do it for me because of my age. I have heard that kids can get them somewhere but I can't find them. Does anyone know where?
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Author: rjm1 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12968 of 75871
Subject: Re: IRA for 13 yr. old Date: 8/8/1999 9:54 AM
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Hi, my mom told me to write. I usually make atleast $50 a
week babysitting and thought that maybe I should consider
an IRA. I have called several brokerage houses and mutual
fund companies but they won't do it for me because of my
age. I have heard that kids can get them somewhere but I
can't find them. Does anyone know where?


Try the large mutual funds. I set up accounts for my children at Fidelity, but they were probably over 18 when I did it.

If you do not get a better answer, pick a large mutual fund family and fill out the application and mail it with your deposit. They just might accept it.

At you age a Roth IRA would be a great way to start saving. Keep looking until you find a place to open an account. Make sure you invest in equities, no fixed income, CD's etc.

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Author: gpt1001 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12969 of 75871
Subject: Re: IRA for 13 yr. old Date: 8/8/1999 10:05 AM
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In order to have an IRA, you have to have income reported on W-2. Babysitting money won't do it.

The only mutual fund I know of that does IRA's for children is American funds. You must see a broker to get them.

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Author: rjm1 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12970 of 75871
Subject: Re: IRA for 13 yr. old Date: 8/8/1999 10:20 AM
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In order to have an IRA, you have to have income
reported on W-2. Babysitting money won't do it.

The only mutual fund I know of that does IRA's for
children is American funds. You must see a broker to
get them.


You do need earned income. I think the IRS would tax the babysitting money if it new about it (and it will now know). Could have a self employment tax problem since the earnings are over 400. I think this si form SE and filed with the 1040. Also mayhave some tax implications with parents returns. What a complicated tax system we have.

My wife had a serious operation and I paid one of my daughters under $1,000 (Under 1,000 avoids the need to file W2 and pay social security taxes) and then contributed the earnings to an IRA with no problem. I did explain on my tax return why there was no W2 attached.

I would go with the IRA. I think it is worth it in the long run.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12971 of 75871
Subject: Re: IRA for 13 yr. old Date: 8/8/1999 10:27 AM
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Greetings, Judith, and welcome. You asked:

<<Hi, my mom told me to write. I usually make atleast $50 a week babysitting and thought that maybe I should consider an IRA. I have called several brokerage houses and mutual fund companies but they won't do it for me because of my age. I have heard that kids can get them somewhere but I can't find them. Does anyone know where?>>

Because of age issues and the fact that minors cannot sign an enforceable contract, it's difficult for those of your years to find an IRA provider willing to accept your account. Nevertheless, they are available. I understand that the Vanguard family of mutual funds does accept IRAs for minors, but I'm also told that often the regular sales staff does not know this, so it may take persistence and insistence on your part to get them to agree to do so.

The bigger issue, though, is can you even open an IRA? While the money you earn from babysitting is technically taxable compensation, it can be challenged as inappropriate earnings for an IRA contribution. You earned it as a self-employed person. Did you pay the FICA (i.e., Social Security tax) on those earnings? Did you make estimated income tax withholdings on those earnings? That and a whole host of other issues lead me to conclude that in the absence of a W-2 from an employer to substantiate those earnings, you will encounter more hassle than benefit from using that income for an IRA contribution. For a complete discussion, see the thread on this board that starts at http://boards.fool.com/Message.asp?id=1040013000935000&sort=id.

I commend you for your thoughts, and I urge you to continue your investments of those monies. However, I also suggest you do so in a regular account until you later begin regular employment. At that time, which shouldn't be too many years off, you can use those wages to justify an IRA with ease. As to what to do with the money now, you may be interested in what other teens do. For that, see our area at http://www.fool.com/FamilyFool/1998/FamilyCollection980325.htm.

Regards and Fool on..Pixy

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Author: MotherQueen One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12979 of 75871
Subject: Re: IRA for 13 yr. old Date: 8/8/1999 3:45 PM
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Ok, ok - Joanna here (Judith's daughter),
I appreciate all of your answers.
I read all of this and it all makes sense to me. No W-2 - self employed, (SEP IRA an option?), child labor laws-the can of worms, report-better return/don't report. I don't want to do anything against the law and I want to be honest.

Many of my babysitting jobs are every now and then (I have about 6 customers and growing). But one is 5 days a week (two working parents). My mom says that there is a place on the tax forms that a person can deduct child care expenses, which is what I do for them. So aren't they going to turn my name into the IRS anyway?

Joanna

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12982 of 75871
Subject: Re: IRA for 13 yr. old Date: 8/8/1999 4:40 PM
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Joanna asks:

<<My mom says that there is a place on the tax forms that a person can deduct child care expenses, which is what I do for them. So aren't they going to turn my name into the IRS anyway?>>

If audited and asked to justify the deduction, than yes they will. That, in turn, would mean you should have reported that income, paid all applicable FICA and other taxes, etc. It sounds to me as if you meet the criteria for self-employment for income tax filing purposes. However, I'm not the tax guru in Fooldom and hesitate to say you must do so. Your income is probably still too low to require income tax filing. Thus, if you don't have to at this stage, why do so? The other tax expenses would eat into that income too much. I'd be tempted to let it ride, but again I'm not the expert on that subject.

Regards..Pixy

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Author: tonyw44 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12994 of 75871
Subject: Re: IRA for 13 yr. old Date: 8/9/1999 9:58 AM
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I don't think that babysitting income would be considered "earned income" by the IRS. Nobody files any forms or anything. Maybe you can't open up an IRA, but you could open up a regular investment account and get into investments that way. Or, have your mother open up a gift trust for you.

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Author: tonyw44 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 12995 of 75871
Subject: Re: IRA for 13 yr. old Date: 8/9/1999 10:02 AM
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Nope. They aren't going to file that form because it's a pain in the butt. Sure, they can deduct the child care expenses, but it's not easy to file a W-2. They'll just take that deduction, and let's face it, the IRS isn't going to track down the babysitter!

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Author: zorloc Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 13005 of 75871
Subject: Re: IRA for 13 yr. old Date: 8/9/1999 2:25 PM
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I agree that the IRS is not going to track down a minor being paid and try to collect, unless some benefit is attempted.

If you want to setup an IRA, you would have to report the self-employment income, which if the amount is over $400 would make you suseptable to the Self-Employment taxe (15.3%). Unless there is an exception for young children (so you don't have to pay the SE tax), this would be a horrid deal for you. First, you are losing 15.3% of your principal. Second, you will not derrive any benefit from paying Social Security or Medicare, since they only counts years/earnings after you are 22 or 23.

It seems to me that the better investment would be to set up a taxable custodial account, which most major financial houses will do (Vanguard, T.Rowe Price, etc.).

jbw

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