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Author: KATinChicagoland Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Re: IRAs for under 18 Date: 6/3/1998 1:27 PM
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<<I have recently read about a neat way to increase my (future) childrens' wealth: start an IRA for them BEFORE age 18. In order to do this, they have to work to earn a certain amount of income per year... doing yardwork, house work, etc. Does anybody know any other specifics about how this works?>>

I've responded to this question several other places and now plan to post a page on this subject on my web site. To the best of my knowledge the idea, or at least the popularity of the idea, originated in an article published in the April issue of Mutual Funds Magazine. This is a respectable publication, but they were out over their skis on this one.

There's nothing wrong with an IRA for a minor if the child has legitimate, taxable compensation income. But money earned from parents for doing chores around the house is understood to be non-taxable. Have you ever heard of anyone paying tax on this income? Have you ever heard of the IRS attempting to collect tax on this income? If the income isn't taxable, it can't provide the basis for a contribution to an IRA. And if you make contributions without a proper basis, various bad things happen, including an excess contribution penalty.

Kaye Thomas, author
Fairmark Press Tax Guide for Investors
http://www.fairmark.com
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