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Author: crocket838 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76078  
Subject: Roth IRA question Date: 2/14/2007 3:47 PM
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I am in the process of opening Roth accounts for my 2 younger daughters. Both are in high and work part time.

The youngest only earned $1200 in 2006. The fund I want to send it to has a minimum of $1500. Can we contribute the $1500 even tho she didn't make that much?

Thanks
Crocket
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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55842 of 76078
Subject: Re: Roth IRA question Date: 2/14/2007 3:52 PM
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The youngest only earned $1200 in 2006. The fund I want to send it to has a minimum of $1500. Can we contribute the $1500 even tho she didn't make that much?

Well, you can only contribute $1200 for 2006, no more. However, if she's working in 2007 as well, you could contribute $1200 for 2006, and $300 for 2007 (so long as you're sure she'll make that much (or, preferably, already has) ).

If that's not the case, it'd be a good idea to fund the Roth anyway and just leave it in a Money Market Fund until you can add more. That way it'll be ready to go eventually, and tax free.

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Author: crocket838 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55843 of 76078
Subject: Re: Roth IRA question Date: 2/14/2007 4:17 PM
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Well, you can only contribute $1200 for 2006, no more.

That's what I thought. Just wanted to make sure. The fund also allows you to open with $200 if you sign up for automatic investment. I think she could do that and also send in a check to bring it up to $1200. I will call them tomorrow.

Thanks
Crocket

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Author: ravvt Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55844 of 76078
Subject: Re: Roth IRA question Date: 2/14/2007 4:21 PM
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Can we contribute the $1500 even tho she didn't make that much?

According to this article, the IRS is vague (what's new) on how child income from parents for household chores should be handled. IF you paid your child earned $300 during the year for household chores from you, that income could be considered for earned income & IRA purposes.

Are you sure that you didn't pay your child at least $6 / wk for all that lawn mowing, baby sitting, car washing, etc that they did?...

http://www.fairmark.com/rothira/minors.htm

Roth IRAs for Minors

...

The major impediment to IRAs for children, especially young children, is the earned income requirement. An unmarried person must have earned income of his or her own to contribute to a Roth IRA. The income has to be compensation income, not investment income. And it has to be taxable compensation income.

...

Why not use a child's earnings from household chores to meet the earned income requirement? Let's make some favorable assumptions:

· The child is actually doing work for the money.
· You're paying only a reasonable hourly rate for the work.
· You have good records to prove that the work was done and the money paid.

Will that do the trick? Strangely enough, there's no clear guidance on this issue. I personally don't believe this form of income can support a contribution to an IRA, because I don't think this income is taxable. So far, though, the IRS hasn't said anything about it, and it isn't clear at this point whether they will raise the issue.


It's rather bold on my part to suggest that this form of income isn't taxable, because the Internal Revenue Code says all income is taxable unless an exception is made, and there's no exception for amounts paid by parents to minor children for household chores. No explicit exception, anyway. Yet I'm comfortable in the conclusion.




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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55845 of 76078
Subject: Re: Roth IRA question Date: 2/14/2007 5:37 PM
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Agreed that chore income is very questionable as to being okay to use to open an IRA - and definitely leaning no. But the OP said his daughters were in high school and worked "part time." That didn't sound like the OP meant at home, but if that is the case, then its a separate issue entirely.


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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55846 of 76078
Subject: Re: Roth IRA question Date: 2/14/2007 6:12 PM
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I recommend Scottrade for Roth IRAs for kids. They handle the custodial issue well and handle it well when you want to release it. $7 trades and NO IRA fees. $500 minimum to open an account. Think about ETFs instead of mutual funds.

We matched our kids' contributions up to their limits through college.

rad

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Author: crocket838 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55850 of 76078
Subject: Re: Roth IRA question Date: 2/15/2007 12:13 AM
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I recommend Scottrade for Roth IRAs for kids.

We've been pretty happy with the mutual fund we've been using for years. When my kids get older, they can go to whoever they want. I just wanted to get them started on some kind of retirement. In two years, they'll be poor college students.

Crocket

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55855 of 76078
Subject: Re: Roth IRA question Date: 2/15/2007 10:33 AM
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We've been pretty happy with the mutual fund we've been using for years.

I was offering an alternative with a lower minimum. I also was offering the experience of taking a custodian off of a Roth as well as information on the fees at Scottrade. There are often account closing and annual maintenance fees on IRAs that may not be apparent at first look.

rad

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Author: crocket838 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55871 of 76078
Subject: Re: Roth IRA question Date: 2/15/2007 8:10 PM
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We've been pretty happy with the mutual fund we've been using for years.

I was offering an alternative with a lower minimum. I also was offering the experience of taking a custodian off of a Roth as well as information on the fees at Scottrade. There are often account closing and annual maintenance fees on IRAs that may not be apparent at first look.

rad


I really do appreciate that. And I am aware of all that.

I am a creature of habit. :)

At this point in time, it's easier for me to keep track of all things financial.....for them and me. There is a maintenance fee involved, which is OK with me.

I guess it's more personal for me. The fund manager is also my cousin. If I have questions or concerns, I can call anytime...and I have.

Crocket


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Author: bogwan Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55881 of 76078
Subject: Re: Roth IRA question Date: 2/16/2007 2:54 PM
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I always put this out as food for thought, not criticism. I don't think paper assets are the best return on the money. Piano lessons, foreign language, marksmanship, bicycle repair, any kind of self improvement amortized over their next 70 years would give an extremely high return.

I once paid $120 for a bicyle repair class, and saved that yearly on bicycle overhauls. On the other hand many education experiences probably could be considered intellectual dot com stocks.


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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55882 of 76078
Subject: Re: Roth IRA question Date: 2/16/2007 2:59 PM
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I once paid $120 for a bicyle repair class, and saved that yearly on bicycle overhauls.

We had a son who was a bicycle mechanic summers through high school and college. We also saved money on overhauls as well as got great discounts on bikes, accessories and clothing :) He got the match on his Roth contributions, tuition, room, and board for 4 years of college :)

Now he's a bicycle designer and we can't afford the bikes but he's also a ski instructor so we're hoping for discounts there - he does have access to equipment discounts.

rad

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