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Can I open a Roth IRA for my minor children by way of a gift, or must the contributions to the Roth account be from earned income?

Thank you

TyeLouis
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<Can I open a Roth IRA for my minor children by way of a gift, or must the contributions to the Roth account be from earned income?>

You should probably ask TMF Taxes in the Tax Strategies folder to get the right answer. OTOH, if this is required, you might pay the kids a salary for something. Household work, or something. If they are too young for that, you could hire them to be cute or something like that... ;-)
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The law requires that IRAs be earned income. For children, the IRS expects records to show that income from parents really was earned and that the pay was reasonable. Sweet as the IRS people are, they would probably think of tax evasion if you paid kids $2000 to be cute, or even to mow the lawn once. You certainly could pay kids the going rate for mowing the lawn, or for cleaning or painting the house if they really did the work and you had records to document it (NOT recommended for preschool children). TMF Taxes or Pixy could probably explain what you need in records, but I plan on just keeping a handwritten ledger with the date, amount paid, the work done, and how the pay was determined (going rate in neighborhood, bid from Merry Maids, etc.). I also plan to keep this distinct from chores (making beds, putting away toys, setting the table).

The above is my interpretation of the law, based on a conversation with a friendly IRS auditor about my children's unearned income. Please check with a professional before trusting me!

- Roger
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I would be concerned about paying my children for task that were reported to the IRS for fear that they would come after me for Social Security taxes, and Medicare taxes. Also the State may want the kids to pay income taxes on their wages.


Bob
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Greetings, TyeLouis, and welcome to Fooldom.

<<Can I open a Roth IRA for my minor children by way of a gift, or must the contributions to the Roth account be from earned income?>>

RogerD gave you a super reply. Any deposit to an IRA, Roth or otherwise, must come from taxable compensation (i.e., wages, salaries, tips, professional fees, bonuses, etc.). A gift to your children will not fall into that category.

While I like Roger's concept of paying them for a job performed, I do have some concern over the amount. Technically, you then become an employer. As I recall, if they receive compensation of $300 or more in any quarter, then you as the employer must withhold federal, state, and FICA. You must also obtain an Employer Identification Number and accomplish the various filings with all the appropriate agencies in the time frames prescribed. Additionally, the kids must file a tax return each year to get the withholdings back. IMHO, that could get to be a pretty big chore.

And BTW. You want a real hassle, just try setting up an IRA for a minor sometime. While perfectly legal, the vast majority of funds and brokers refuse to accept these accounts on behalf of the minor. It can be done, but it ain't easy.

Regards…..Pixy
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