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Long story short -
money for my kids from my mother,

older 2 kids, 17 & 14.5 have paid employment at local coffee shop

Can they have Roth IRAs and are there any special issues because they are minors ?

I'm sure it's here somewhere but I couldn't find anything with the search function. My thought was to fund Roth IRAs up to their earned income from the money I have from my mother for them.

Thanks for any help.

RF..family money manager ;)
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RecoveringFool wrote:
<<money for my kids from my mother,>..<older 2 kids, 17 & 14.5 have paid employment at local coffee shop>..<Can they have Roth IRAs and are there any special issues because they are minors ?>>

They can contribute to an IRA, Roth or otherwise, up to their earned income. They can fund the IRA with a gift, but the gift doesn't count towards their earned income. [Flip it around - they can put all their earned income in the IRA and you fund their non-IRA spending with a gift. Money is money!]

In fact, it may even be worthwhile for them to rustle up enough summer work to put them over the yearly $2k limit. $2k, with no taxes due, is going to grow _substantially_ by the time a 15 or 17 year old retires.

<<My thought was to fund Roth IRAs up to their earned income from the money I have from my mother for them.>>

Which may bring in a somewhat tricky point. I don't think _you_ can fund IRAs for your children. You (well, your mother) can give them the money for them to fund their own IRA with. And then the money is in their name, so they can do what they will with it.

[Not meaning to imply anything, just pointing it out. Some kids are very smart with money, and this won't be a problem, some kids are less smart, but fearful of The Wrath Of Mom, so would also leave it alone. But _some_ kids have no such fears...]

Later,
scott
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Shess
I appreciate the response but the big questions - are there companies that will take Roth IRAs for minors, which ones and how do they have to be registered ? What my kids do with money is not an issue for me - it's the logistics of getting the IRAs set up that's a problem.

Thanks
RF
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RF--

Yes, opening an IRA for a minor is tricky, especially at a discount broker. While legal, many just won't touch it.

What you do is get an account application from Waterhouse, and have your minor child fill it all out in his/her name, SS no., birthdate, etc. Then send it in along with the amount of the opening deposit. [Brokerages rarely turn down real money, even if below account minimums, etc. ] Have them dump it in the money-market "sweep" fund.

So far, everything is OK, legal, and above board. Even though the minor cannot own securities in his/her name, all we have now is a money-market account in Waterhouse Bank.

Now, Waterhouse Bank is the custodian of the funds for the minor, so securities can be held. but, the minor can't do any trading ...

So, once the account is completely opened and you have the account numbers, personal broker, etc., THEN fill out the trading authorization/limited power of attorney form to allow one or both parents to select investment vehicles for the child. This will probably be only for a couple of years, and an allocation or two a year anyway. Most kids are in their teens before they have earned income, and will then turn 18 in a very few years.

If you try to combine the steps above by having the parent open the account in person with immediate trading authority, you will probably be rejected. Been there, done that. So have a few others that I have been in contact with.

I selected Waterhouse--would accept minor accounts, no annual account fee, very reasonable transaction fees, and a large list of no-transaction-fee mutual funds. In addition, they offer the whole spectrum of investment choices, including bonds, mutual funds, stocks, options, and a daily-sweep money-market account.

Great idea--get your kid to save early & save often, & they won't have to save a lot.
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RF asks:

I appreciate the response but the big questions - are there companies that will take Roth IRAs for minors, which ones and how do they have to be registered ? What my kids do with money is not an issue for me - it's the logistics of getting the IRAs set up that's a problem.

As Shess pointed out, as long as the kids have the earnings, the IRA can be funded from any source, to include from a check you write. The big trick is to find a brokerage/fund that will accept the account from a minor. Though legal, many funds/brokers won't do it because an IRA is a contract and minors can't be held to one. There are a few, though, who will. I'm told Vanguard does. An adult has to act as the child's agent/custodian until the child reaches majority, but that's no big deal. As I said, the problem is finding an agency to accept the account.

Let your fingers do the walking, and good luck in the search.

Regards….Pixy
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DownwardSpiral wrote:

What you do is get an account application from Waterhouse, and have your minor child fill it all out in his/her name, SS no., birthdate, etc. Then send it in along with the amount of the opening deposit. [Brokerages rarely turn down real money, even if below account minimums, etc. ] Have them dump it in the money-market "sweep" fund.

So far, everything is OK, legal, and above board. Even though the minor cannot own securities in his/her name, all we have now is a money-market account in Waterhouse Bank.

Now, Waterhouse Bank is the custodian of the funds for the minor, so securities can be held. but, the minor can't do any trading ...

So, once the account is completely opened and you have the account numbers, personal broker, etc., THEN fill out the trading authorization/limited power of attorney form to allow one or both parents to select investment vehicles for the child. This will probably be only for a couple of years, and an allocation or two a year anyway. Most kids are in their teens before they have earned income, and will then turn 18 in a very few years.

If you try to combine the steps above by having the parent open the account in person with immediate trading authority, you will probably be rejected. Been there, done that. So have a few others that I have been in contact with.


Neat.... I can't vouch for the legality, but if it gets the job done, what the hey! I like it.

Regards.....Pixy
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<<So, once the account is completely opened and you have the account numbers, personal broker, etc., THEN fill out the trading authorization/limited power of attorney form to allow one or both parents to select investment vehicles for the child. >>


Why bother? With an internet broker, all you need is the userID and password. I manage 5 account for others, and with none of them have an official trading authorization. 'course, the broker won't talk to me on the phone---guess they can figure out that I'm not my mom.

Ray
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Rayvt replied:

<< <<So, once the account is completely opened and you have the account numbers, personal broker, etc., THEN fill out the trading authorization/limited power of attorney form to allow one or both parents to select investment vehicles for the child. >>


Why bother? With an internet broker, all you need is the userID and password. I manage 5 account for others, and with none of them have an official trading authorization. 'course, the broker won't talk to me on the phone---guess they can figure out that I'm not my mom.

Ray >>

For me, they woudn't issue the online trading authority until there was an authorization on record. After all, this is a minor's custodial account. Maybe they wouldn't catch it in all cases.

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