You cannot contribute more to an IRA than your earned, taxable income. The question is, does household chore work qualify? What I'm sure of is there's no easy answer.I couldn't tell from the OP if the earnings were from regular chores, which don't count as earnings from an IRS perspective, or from other jobs that can be around the house and do qualify for earnings from an IRS perspective. Offhand, I don't know what sorts of jobs fall into the latter category, but I think it's things like raking the leaves or mowing the lawn. I know that the IRS has information available on this, so the OP should clarify what sort of work it is.Certainly if you wanted to try say that it was, you would need to file a W2 of 1099-MISC for her, and potentially pay withholding and SS/Medicare taxes. If you got challenged though, you might have a fight ahead of, as claiming that chore income is taxable would mean that everyone who's paying their kid chore money would need to report it. So that'd be a tough one.Assuming that the work would fit the IRS definition where the child would have earned income, there is no requirement for any employer, whether a parent or not, to pay SS/Medicare taxes for a child under 18. This is also documented in an IRS publication, but I don't recall the number offhand. Therefore, this is not an issue, and there is nothing to fight about with the IRS. Also, a parent does not have to issue a W-2. I happen to issue a W-2 for my DS, who is 15, but he works for his father in his father's business, so I just cut his W-2 when I'm cutting 1099's for the other subs. I don't have to do that, but it makes it cleaner for me and easier for my DH to deduct the child's wages as an expense. But there are no SS or Medicare taxes to be paid.So assuming the OP's child has real earned income, I think a Roth is a much better vehicle for investing than a taxable account. The child is putting post-tax dollars into the Roth, and that money will come out on the other side when the child retires with no taxes due. Except because the child doesn't earn very much, there are no taxes due at this point on the dollars, so it's a lot like putting in pre-tax dollars on this end and taking out dollars on the other end that still have no taxes due.Finally, what about shorter term savings? Are her college expenses covered due to your financial success? If not, perhaps you could agree to take part of her money and put it in a 529 or Education Savings Account. This may be a goal that is more in her time frame, and may be more important for the time being. Also, keeping it in a 529 will hurt her financial aid chances less than if it was in her name directly.I wouldn't do this with her money. As you note, it will affect her financial aid eligibility for college if it is in her name, but I don't see how she can legally give it to her parents to put in a 529 for her own benefit. I'm not sure that a minor can actually gift money like that, so there may issues with that. Further, if she just puts it into a Roth, it won't count at all in the financial aid process, so this is yet another reason to put it there.Something that I've started doing with my kids last year was to match their earnings if they put them in a Roth IRA. That's because I do want them to put 100% of their earnings into a Roth up to the max, but they also need some spending money, so this encourages them to save without penalizing them by forcing them to be without spending money. Again, this whole thing really hinges on if the child does, in fact, have earned income. If not, then this won't apply til that time.
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