Starting a Custodial Roth IRA

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Topic Author
Megamill
Posts: 59
Joined: Sun Feb 11, 2018 10:44 am

Starting a Custodial Roth IRA

Post by Megamill » Wed Sep 25, 2019 10:40 am

I have a few questions regarding Roth IRA for a minor. I know that as long as the kid has earned income s/he can contribute to the Roth IRA up to the total earned income. I've also read about how some parents match the kid's contributions. Questions:

1. Is the contribution to the kid's Roth IRA limited to the total NET or GROSS income?

2. Does it matter where the contribution is coming from? In other words, assuming the answer to #1 is GROSS, if the kid's gross income (before taxes, deductions, etc) is say $2,500 for 2019, can the parent contribute the entire $2,500 to the kid's Roth IRA?

3. If the parent does make the contributions on behalf of the kid, or if the parent matches the kid's contributions (up to the income limit), does the kid have to claim that as income?

4. If the parent opens the custodial Roth IRA for the kid and a few years later the kid, who will then be an adult, takes over the Roth IRA, can the kid move it from the provider (Fidelity) where the parent initially opened it to a different provider (Vanguard)?

mhalley
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Re: Starting a Custodial Roth IRA

Post by mhalley » Wed Sep 25, 2019 10:52 am

1.gross
2.Money is fungible, so you can contribute the entire amount.
3. Anyone can gift anyone else up to 15k a year with no tax consequences.
4.sure. Once he is an adult, he can move it, cash it out, etc, it is his money.
https://www.nerdwallet.com/blog/investi ... -roth-ira/

https://www.nerdwallet.com/blog/taxes/gift-tax-rate/

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Duckie
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Location: California Bay Area

Re: Starting a Custodial Roth IRA

Post by Duckie » Wed Sep 25, 2019 5:01 pm

Megamill wrote:Is the contribution to the kid's Roth IRA limited to the total NET or GROSS income?
It depends on the type of income. If the kid is a W-2 employee then it is gross income. If the kid is self-employed (e.g. summer job mowing lawns / winter job shoveling snow) then it is net income minus one-half SE taxes.
Does it matter where the contribution is coming from? In other words, assuming the answer to #1 is GROSS, if the kid's gross income (before taxes, deductions, etc) is say $2,500 for 2019, can the parent contribute the entire $2,500 to the kid's Roth IRA?
No it does not matter and yes the parent can contribute if the kid will not.
If the parent does make the contributions on behalf of the kid, or if the parent matches the kid's contributions (up to the income limit), does the kid have to claim that as income?
No. If the kid earns $2500, after taxes has $2300, spends $400, and contributes $1900, the parent can add the extra $600. It is a gift but it is under the $15,000 exclusion limit so the parent does not even have to file a tax form. The kid as the giftee does not have any liability.
If the parent opens the custodial Roth IRA for the kid and a few years later the kid, who will then be an adult, takes over the Roth IRA, can the kid move it from the provider (Fidelity) where the parent initially opened it to a different provider (Vanguard)?
Once the kid takes over s/he can do anything.

Topic Author
Megamill
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Joined: Sun Feb 11, 2018 10:44 am

Re: Starting a Custodial Roth IRA

Post by Megamill » Wed Sep 25, 2019 7:24 pm

Thanks mhalley and Duckie. So rather than wait until the end of the calendar year, the parent could just match the kid's gross paycheck (from W2 job) every pay day. So if kid is averaging $400 every biweekly paycheck, then parent could deposit $400 into the Roth IRA every other week as long as the contributions don't exceed the total earned for the year or $6k, right?

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FiveK
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Re: Starting a Custodial Roth IRA

Post by FiveK » Thu Sep 26, 2019 6:39 pm

Megamill wrote:
Wed Sep 25, 2019 7:24 pm
Thanks mhalley and Duckie. So rather than wait until the end of the calendar year, the parent could just match the kid's gross paycheck (from W2 job) every pay day. So if kid is averaging $400 every biweekly paycheck, then parent could deposit $400 into the Roth IRA every other week as long as the contributions don't exceed the total earned for the year or $6k, right?
If the only difference between "gross" and "net" for your kid are taxes (federal, state, local, FICA) then yes. That's because the sum of the gross amounts will appear in kid's W-2 Box 1.

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