Roth IRA for kids

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snowman
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Re: ROTH Ira for kids

Post by snowman »

Terri-bh wrote: Mon Dec 10, 2018 3:12 pm
snowman wrote: Mon Dec 10, 2018 2:53 pm
Terri-bh wrote: Mon Dec 10, 2018 2:51 pm Any downsides that I should know about regarding Vanguard?
As far as what exactly?
Anything you've found frustrating with them?
Nothing really. Accounts were easy to open and transfer, all done online. Selected online statements and confirmations so I don't have to deal with paper. Chose dividend reinvestment. Linked to their bank checking account from which they deposit/contribute. Single login was a nice bonus.

These accounts serve intended purpose very well - allow kids to save and invest, all without any trading or monthly fees. That's all I was after. I cannot comment on any other aspect of Vanguard products or services.

Hope that was helpful. I would definitely recommend them.
earlywynnfan
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Re: ROTH Ira for kids

Post by earlywynnfan »

OK, please let me know if I got this right:
My daughter just turned 16 and started at job as an independent contractor. Knowing the tax rule, we only let her work this year until she earned $400. Since she will NOT generate a 1099, I was under the assumption that she couldn't open a Roth IRA. But as I'm reading here, plus an awful lot of time on google tonight, we can document her work time. (I assume her and I sign that she worked as stated above? Would I just keep this with my 2018 taxes?) Then I can open a minor Roth IRA for her with the $400 this year?

Next year she'll earn much more and generate a 1099. I was going to wait until next year to have her open it, but why not get a head start?

Thanks,
Ken
Bacchus01
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Re: ROTH Ira for kids

Post by Bacchus01 »

We did it differently.

We told our kids that once they got a wage earning job, whatever that is, we would match all earnings by contributing to a ROTH IRA for them. This puts the emphasis on them to work with a nice bonus and an opportunity to talk about investing, compound growth, tax impacts, etc
Terri-bh
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Re: ROTH Ira for kids

Post by Terri-bh »

earlywynnfan wrote: Mon Dec 10, 2018 7:54 pm OK, please let me know if I got this right:
My daughter just turned 16 and started at job as an independent contractor. Knowing the tax rule, we only let her work this year until she earned $400. Since she will NOT generate a 1099, I was under the assumption that she couldn't open a Roth IRA.
Which tax rule?
earlywynnfan
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Re: ROTH Ira for kids

Post by earlywynnfan »

Terri-bh wrote: Tue Dec 11, 2018 11:14 am
earlywynnfan wrote: Mon Dec 10, 2018 7:54 pm OK, please let me know if I got this right:
My daughter just turned 16 and started at job as an independent contractor. Knowing the tax rule, we only let her work this year until she earned $400. Since she will NOT generate a 1099, I was under the assumption that she couldn't open a Roth IRA.
Which tax rule?
That at $400 she'd have to report, and at $600 she'd generate a 1099 from her employer, at which she'd have to pay taxes.
snowman
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Re: ROTH Ira for kids

Post by snowman »

earlywynnfan wrote: Mon Dec 10, 2018 7:54 pm OK, please let me know if I got this right:
My daughter just turned 16 and started at job as an independent contractor. Knowing the tax rule, we only let her work this year until she earned $400. Since she will NOT generate a 1099, I was under the assumption that she couldn't open a Roth IRA. But as I'm reading here, plus an awful lot of time on google tonight, we can document her work time. (I assume her and I sign that she worked as stated above? Would I just keep this with my 2018 taxes?) Then I can open a minor Roth IRA for her with the $400 this year?

Next year she'll earn much more and generate a 1099. I was going to wait until next year to have her open it, but why not get a head start?

Thanks,
Ken
I don't quite follow the $400 limit. Why? At 16, my kids earned several thousand in part time jobs. There were no taxes due to standard deduction, which has now been raised to $12K. What am I missing?
earlywynnfan
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Re: ROTH Ira for kids

Post by earlywynnfan »

She's an independent contractor, which means she'll have to pay taxes no matter her age if she makes over $600.
Spirit Rider
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Re: ROTH Ira for kids

Post by Spirit Rider »

earlywynnfan wrote: Tue Dec 11, 2018 1:07 pm She's an independent contractor, which means she'll have to pay taxes no matter her age if she makes over $600.
Or more specifically, she has to pay SE taxes not income taxes. More importantly, why is being paid as an independent contractor (if she is even properly classified)?

If she was paid as household help or employed by her parents in a non-corporation business solely owned by the parents. There would be no need for FICA taxes or income tax withholding and FUTA would not be required unless > $1000/quarter.
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Re: Roth IRA for kids

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) (IRA).

I also fixed the spelling in the thread title. ROTH is not an acronym. See the wiki: Roth IRA
wiki wrote:Named after US Senator William Roth, Roth IRAs were established by the Taxpayer Relief Act of 1997.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
earlywynnfan
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Re: ROTH Ira for kids

Post by earlywynnfan »

Spirit Rider wrote: Tue Dec 11, 2018 4:01 pm
earlywynnfan wrote: Tue Dec 11, 2018 1:07 pm She's an independent contractor, which means she'll have to pay taxes no matter her age if she makes over $600.
Or more specifically, she has to pay SE taxes not income taxes. More importantly, why is being paid as an independent contractor (if she is even properly classified)?

If she was paid as household help or employed by her parents in a non-corporation business solely owned by the parents. There would be no need for FICA taxes or income tax withholding and FUTA would not be required unless > $1000/quarter.
She works for an outside person who has a small side job (runs an event photobooth.) My daughter is an assistant. Because the lady has, I assume, a sole proprietorship, my daughter was given the job with the understanding that she's an independent contractor. We just gave her a W9. Per my accountant, if she crosses the $600 threshold, she has to pay SE taxes. My goal is to get some sort of legal way to document her wages so I can open a Roth.

To the OP, sorry if I'm hijacking your thread!!
Ken
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Re: ROTH Ira for kids

Post by Spirit Rider »

earlywynnfan wrote: Tue Dec 11, 2018 4:26 pm Because the lady has, I assume, a sole proprietorship, my daughter was given the job with the understanding that she's an independent contractor.
Th fact that the lady is a sole proprietor has no relevance as to whether your daughter should be paid as a W-2 or an IC. Leaving aside the fact that she is most certainly misclassified. Very small businesses such as this don't want the hassle and probably wouldn't have hired her if she insisted on W-2 status.
Per my accountant, if she crosses the $600 threshold, she has to pay SE taxes. My goal is to get some sort of legal way to document her wages so I can open a Roth.
You accountant is wrong. The $600 threshold is for the reporting on a 1099-MISC.

Self-employment business profit > $400 requires the completion of Schedule C and Schedule SE. (Business Profit * 0.9235) > $400 requires payment of SE taxes. This is true whether it is reported on a 1099-MISC or not.

It is perfectly legal for you to open a UTMA Roth for her and make contributions on legitimate earned income regardless of any tax reporting. Just keep some contemporaneous records of hours worked and payments received.
earlywynnfan
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Re: ROTH Ira for kids

Post by earlywynnfan »

Spirit Rider wrote: Tue Dec 11, 2018 5:26 pm
earlywynnfan wrote: Tue Dec 11, 2018 4:26 pm Because the lady has, I assume, a sole proprietorship, my daughter was given the job with the understanding that she's an independent contractor.
Th fact that the lady is a sole proprietor has no relevance as to whether your daughter should be paid as a W-2 or an IC. Leaving aside the fact that she is most certainly misclassified. Very small businesses such as this don't want the hassle and probably wouldn't have hired her if she insisted on W-2 status.
Per my accountant, if she crosses the $600 threshold, she has to pay SE taxes. My goal is to get some sort of legal way to document her wages so I can open a Roth.
You accountant is wrong. The $600 threshold is for the reporting on a 1099-MISC.

Self-employment business profit > $400 requires the completion of Schedule C and Schedule SE. (Business Profit * 0.9235) > $400 requires payment of SE taxes. This is true whether it is reported on a 1099-MISC or not.

It is perfectly legal for you to open a UTMA Roth for her and make contributions on legitimate earned income regardless of any tax reporting. Just keep some contemporaneous records of hours worked and payments received.
Thank you for this reply. Perhaps I misinterpreted what my account said, I'll be asking him, it looks like I might've gotten the numbers backwards. My assumption as to my daughter's work status at this job is that the boss didn't want to be on the hook for SS and other taxes?? Isn't that essentially the difference as to my daughter's status?
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J G Bankerton
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Re: ROTH Ira for kids

Post by J G Bankerton »

newbie003 wrote: Fri Jan 26, 2018 1:25 pm That's actually a great idea. We do have a small family business and the kids actually do help shred on occasion (plus the occasional other small task)!

Separately, would I open the ROTH similar to how I have regular accounts in their name (i.e. UTMA...) or is it just in their name alone?
The I in IRA stands for individual. It can only be in one name.
Spirit Rider
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Re: ROTH Ira for kids

Post by Spirit Rider »

J G Bankerton wrote: Tue Dec 11, 2018 7:21 pm
newbie003 wrote: Fri Jan 26, 2018 1:25 pm That's actually a great idea. We do have a small family business and the kids actually do help shred on occasion (plus the occasional other small task)!

Separately, would I open the ROTH similar to how I have regular accounts in their name (i.e. UTMA...) or is it just in their name alone?
The I in IRA stands for individual. It can only be in one name.
An IRA only has one owner, but a IRA for a minor will be a UTMA IRA as @newbie003 indicated.

It will have a title designating the owner and the custodian.
Terri-bh
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Re: ROTH Ira for kids

Post by Terri-bh »

earlywynnfan wrote: Tue Dec 11, 2018 7:15 pm
Thank you for this reply. Perhaps I misinterpreted what my account said, I'll be asking him, it looks like I might've gotten the numbers backwards. My assumption as to my daughter's work status at this job is that the boss didn't want to be on the hook for SS and other taxes?? Isn't that essentially the difference as to my daughter's status?
I don't see why the daughter can't be a contractor as long as she's able to refuse work with no penalty. Is the assumption that as an assistant she has no say in when/where/how she does the job make her a W-2 employee?
Terri-bh
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Re: ROTH Ira for kids

Post by Terri-bh »

earlywynnfan wrote: Tue Dec 11, 2018 4:26 pm
To the OP, sorry if I'm hijacking your thread!!
No, not a problem. This discussion is relevant to one of my other kids.
Spirit Rider
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Re: ROTH Ira for kids

Post by Spirit Rider »

Terri-bh wrote: Tue Dec 11, 2018 10:36 pm I don't see why the daughter can't be a contractor as long as she's able to refuse work with no penalty. Is the assumption that as an assistant she has no say in when/where/how she does the job make her a W-2 employee?
The ability to refuse to work without penalty is nowhere in the IRS rules with regard to proper worker classification. The IRS rules are based on Behavioral Control, Financial Control and Relationship of the Parties. In all three areas from the limited information, she is really an employee.

Its not all bad being an IC. I don't know if a minor can open a one-participant 401k, but if they can. There is actually a way to make both Roth 401k contributions and Roth IRA contributions on the same compensation.
kksmom
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Re: ROTH Ira for kids

Post by kksmom »

Spirit Rider wrote: Tue Feb 20, 2018 5:59 pm

If the company is a sole proprietorship owned by you or a partnership of just you and your spouse, your children < 18 are not subject to FICA and < 21 are not subject to FICA. Combined with wages < $600 no W-2 reporting required.

Hi

Trying to clarify/confirm your statement, for our personal situation re above

If child is employed by a company- LLC, run/owned solely by one of his parents, then he is a "family help" and not a household help and thus like you said and per the IRS site https://www.irs.gov/businesses/small-bu ... amily-help , they are not subject to SS or Medicare taxes aka FICA.And if <21 yrs of age, no contributions to FUTA.

However could not find a link where the wage limit (<600); requiring no w2 reporting.
Would appreciate a link, for the wage limits .
Thanks
earlywynnfan
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Re: Roth IRA for kids

Post by earlywynnfan »

I was trying not to be long-winded in my typing, this sums up what I meant: https://budgeting.thenest.com/much-mone ... 27270.html

Since this is her only income, she will not be paying any income tax, nor will she trigger the other taxes.

In my daughter's case, he boss was totally fine with her not working the next few weeks since she'd almost start losing money, with the understanding that next year she'll work a lot more and have to pay up, which is just fine.

To Spirit Rider: I'll be looking into the ability to do a Roth 401K AND IRA. We obviously won't be maxing out either, but the ability to double-dip, if you will, has me intrigued.

Ken
earlywynnfan
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Re: Roth IRA for kids

Post by earlywynnfan »

To KKsmom: my wife and I have a small business and were searching for ways to start our teenagers in retirement, but "unfortunately" we created an S-Corp for tax purposes.
kksmom
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Re: Roth IRA for kids

Post by kksmom »

Going above , re reading your posts I agree/believe with your posts and spirit riders re wage limits and w2 reporting
earlywynnfan wrote: Tue Dec 11, 2018 12:10 pm ....

That at $400 she'd have to report, and at $600 she'd generate a 1099 from her employer, at which she'd have to pay taxes.
Spirit Rider wrote: Tue Dec 11, 2018 5:26 pm

Self-employment business profit > $400 requires the completion of Schedule C and Schedule SE. (Business Profit * 0.9235) > $400 requires payment of SE taxes. This is true whether it is reported on a 1099-MISC or not.

It is perfectly legal for you to open a UTMA Roth for her and make contributions on legitimate earned income regardless of any tax reporting. Just keep some contemporaneous records of hours worked and payments received.
The below link may help you with regard to scorp and roth ira for kids
https://www.forbes.com/sites/garrettgun ... 006cfc7243
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J G Bankerton
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Re: ROTH Ira for kids

Post by J G Bankerton »

Spirit Rider wrote: Wed Dec 12, 2018 12:17 am The ability to refuse to work without penalty is nowhere in the IRS rules with regard to proper worker classification.
My doctor has canceled appointments/refused to work without penalty. That is a true independent contractor.


Does the child have full access to the money when they turn 18? If so that could be dangerous. I didn't open Roth IRAs for my children until I was sure they would not donate it all to a cult or worse.
Terri-bh
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Re: Roth IRA for kids

Post by Terri-bh »

J G Bankerton wrote: Wed Dec 12, 2018 7:50 am
Does the child have full access to the money when they turn 18? If so that could be dangerous. I didn't open Roth IRAs for my children until I was sure they would not donate it all to a cult or worse.
Yes within the rules of the Roth IRA. If my 14yo is willing to work and put the money into a Roth IRA (it's his money, I'm not matching), I trust him to do the right thing later, and frankly it's his money anyways. At some point you have to let go, but being willing to both work and save for retirement as a minor seems to me to be a good sign of maturity.
GCD
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Re: ROTH Ira for kids

Post by GCD »

J G Bankerton wrote: Wed Dec 12, 2018 7:50 am Does the child have full access to the money when they turn 18? If so that could be dangerous. I didn't open Roth IRAs for my children until I was sure they would not donate it all to a cult or worse.
Well, they do technically, but you can benignly mislead them. Just tell them they can't take the money out until they are 57 and by the time they realize that the reality is different they will presumably be older and wiser.

To me this isn't a whole lot different from any other way you might help your kid. For instance, what if you pay for college and then they spend the money they otherwise would have spent repaying student loans on drugs and gambling instead? As I see it, any leg up you give your children can be squandered or misused.
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Re: ROTH Ira for kids

Post by Spirit Rider »

GCD wrote: Wed Dec 12, 2018 1:08 pm
J G Bankerton wrote: Wed Dec 12, 2018 7:50 am Does the child have full access to the money when they turn 18? If so that could be dangerous. I didn't open Roth IRAs for my children until I was sure they would not donate it all to a cult or worse.
Well, they do technically, but you can benignly mislead them. Just tell them they can't take the money out until they are 57 and by the time they realize that the reality is different they will presumably be older and wiser.

To me this isn't a whole lot different from any other way you might help your kid. For instance, what if you pay for college and then they spend the money they otherwise would have spent repaying student loans on drugs and gambling instead? As I see it, any leg up you give your children can be squandered or misused.
First, only a few states have the only option as age 18 for termination. 47 states have the option to delay that to at least 21, with eight (and increasing) states allowing the delay until age 25.

Second, I consider @GCD's suggestion anything but benign and have no idea where they got 57 from (they aren't pickles). It is one thing if the age of termination is 21 and the custodian doesn't get around to releasing control until they graduate from college and get their first job. It is not only unethical to intentionally hold their money hostage indefinitely, but you can be civilly and at least in one case I am aware off criminally liable.
GCD
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Re: ROTH Ira for kids

Post by GCD »

Spirit Rider wrote: Wed Dec 12, 2018 2:14 pm First, only a few states have the only option as age 18 for termination. 47 states have the option to delay that to at least 21, with eight (and increasing) states allowing the delay until age 25.
Thanks for that. I wasn't aware of this.

Spirit Rider wrote: Wed Dec 12, 2018 2:14 pm Second, I consider @GCD's suggestion anything but benign and have no idea where they got 57 from (they aren't pickles). It is one thing if the age of termination is 21 and the custodian doesn't get around to releasing control until they graduate from college and get their first job. It is not only unethical to intentionally hold their money hostage indefinitely, but you can be civilly and at least in one case I am aware off criminally liable.
Alzheimer's must be kicking in. I meant 59.5 since that generally is the age you can access your Roth without early withdrawl penalties. I have another retirement conversation going with a friend where 57 is relevant and mixed that up.

However, you are reading wayyyyy too much into the rest of it. I said nothing about keeping control or holding anything hostage. I'm just suggesting that if you set the kid up with an IRA you tell them from the time it's established that it is for retirement and they can't touch it until they are 59 1/2. The kid turns 18 (or whatever the particular state says) and gets control. You neglect to tell him "oh by the way you can tap this immediately if you want to pay some penalties and then blow it on whatever you want." Instead you say, "here you go son. Keep contributing and you'll be set at 59 1/2." I'm just suggesting that you psychologically set them up to leave it alone.

I suspect at worst the typical spendthrift youth would go on to not make any more contributions, but might not raid the IRA. If they figure out on their own that they can raid it, oh well. I'm just saying there's no reason to highlight that option for them.
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J G Bankerton
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Re: ROTH Ira for kids

Post by J G Bankerton »

GCD wrote: Wed Dec 12, 2018 1:08 pm To me this isn't a whole lot different from any other way you might help your kid. For instance, what if you pay for college and then they spend the money they otherwise would have spent repaying student loans on drugs and gambling instead?
If they are addicts they don't repay loans; loans you probably counter signed for. A large lump sum to someone who's brain isn't fully developed could be in danger from more than addicts. Bitcoin comes to mind. If the kid does this on his own great gut I wouldn't do it until they are truly adults. The only reason to fund a Roth IRAs for children is to avoid taxes. It is the only way I can still invest and never worry about taxes.
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J G Bankerton
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Re: ROTH Ira for kids

Post by J G Bankerton »

Terri-bh
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Re: ROTH Ira for kids

Post by Terri-bh »

J G Bankerton wrote: Thu Dec 13, 2018 10:33 am If the kid does this on his own great gut I wouldn't do it until they are truly adults. The only reason to fund a Roth IRAs for children is to avoid taxes. It is the only way I can still invest and never worry about taxes.
Let's separate out the two situations:
1. Kids working with the intention of putting their own earnings in
2. Kids keep their earnings, and parents are making the contributions.

Case #1, kid knows there is a Roth IRA because that's where their money is going and they're not able to spend it. You'll know very quickly whether kid is likely to be responsible with it depending on how they feel about working and not getting to spend the money right away. Either way, it's their money as they worked for it--not really fair for parents to withhold access IMO.

Case #2--if you're making the contributions--you never have to tell them about the account at all. Just wait until you're ready to hand it over to them. Or heck, put it in your will. "BTW, your retirement account is fully funded--here's the bank/acct number." it was your money--they may legally have access to it, but I don't see why morally you can't just not tell them about it.
JustHappen
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Re: ROTH Ira for kids

Post by JustHappen »

However, you are reading wayyyyy too much into the rest of it. I said nothing about keeping control or holding anything hostage. I'm just suggesting that if you set the kid up with an IRA you tell them from the time it's established that it is for retirement and they can't touch it until they are 59 1/2. The kid turns 18 (or whatever the particular state says) and gets control. You neglect to tell him "oh by the way you can tap this immediately if you want to pay some penalties and then blow it on whatever you want." Instead you say, "here you go son. Keep contributing and you'll be set at 59 1/2." I'm just suggesting that you psychologically set them up to leave it alone.

I suspect at worst the typical spendthrift youth would go on to not make any more contributions, but might not raid the IRA. If they figure out on their own that they can raid it, oh well. I'm just saying there's no reason to highlight that option for them.
This is what we have told our kids all along that they could not withdraw the money until they are 59 1/2. Since we made all the matching contribution, I think we have a right to tell them when they could withdraw. If they don't follow our advice when they grow up, then I will consider it is our failure that we have not given them good financial education.
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Re: ROTH Ira for kids

Post by JustHappen »

kksmom wrote: Wed Dec 12, 2018 1:36 am
Spirit Rider wrote: Tue Feb 20, 2018 5:59 pm

If the company is a sole proprietorship owned by you or a partnership of just you and your spouse, your children < 18 are not subject to FICA and < 21 are not subject to FICA. Combined with wages < $600 no W-2 reporting required.

However could not find a link where the wage limit (<600); requiring no w2 reporting.
Would appreciate a link, for the wage limits .
Thanks
I also could not find any information regarding wage limit (<600) requires no w2. Based on what I read, it seems the business needs to report any w-2 wage no matter how small amount it is. We could report our kids' income as either w2 or independent contractors. Reporting as w2 definitely has advantages, but I was struggling with w2 reporting. In the end, we paid them less than $400 as independent contractors, which then avoids any reporting requirements.
GCD
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Re: ROTH Ira for kids

Post by GCD »

Terri-bh wrote: Thu Dec 13, 2018 12:23 pm Case #2--if you're making the contributions--you never have to tell them about the account at all. Just wait until you're ready to hand it over to them. Or heck, put it in your will. "BTW, your retirement account is fully funded--here's the bank/acct number." it was your money--they may legally have access to it, but I don't see why morally you can't just not tell them about it.
That works OK if you only make the contributions when they are in HS/college and you match whatever they earn at their summer job. But when they get a real job they might take it upon themselves to start an IRA on their own. I suspect the effects of having 2 IRA's, one they knew about and one they didn't, will be both complicated and unpleasant.
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Re: ROTH Ira for kids

Post by Spirit Rider »

Amy2017 wrote: Thu Dec 13, 2018 1:20 pm I also could not find any information regarding wage limit (<600) requires no w2. Based on what I read, it seems the business needs to report any w-2 wage no matter how small amount it is. We could report our kids' income as either w2 or independent contractors. Reporting as w2 definitely has advantages, but I was struggling with w2 reporting. In the end, we paid them less than $400 as independent contractors, which then avoids any reporting requirements.
General Instructions for Forms W-2 and W-3
Who must file Form W-2. You must file Form(s) W-2 if you have one or more employees to whom you made payments (including noncash payments) for the employees’ services in your trade or business during 2018.

Complete and file Form W-2 for each employee for whom any of the following applies (even if the employee is related to you).
  • You withheld any income, social security, or Medicare tax from wages regardless of the amount of wages; or
  • You would have had to withhold income tax if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding
    on Form W-4; or
  • You paid $600 or more in wages even if you did not withhold any income, social security, or Medicare tax.
kchnew
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Re: Roth IRA for kids

Post by kchnew »

Question to snowman:

I tried to open a Roth IRA for kid, and could not find the link to open the minor account. So I send a message to Vanguard support and was told to open an account for minor, I have to send paper application through mail. You mentioned you did everything online. How did you do it? any link? Thanks ahead.
Spirit Rider
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Re: ROTH Ira for kids

Post by Spirit Rider »

A lot of the comments on here reflect a misunderstanding of just what a UTMA account is, reflect dishonest and unethical behavior and are direct violations of the act. UTMA statutes are based on a model act from the Uniform Law Commision. States may make small modifications to comport with their existing laws or items such as the age of termination. You can check your state's UTMA statute, but these issues are not likely to vary.
Terri-bh wrote: Thu Dec 13, 2018 12:23 pm Case #2--if you're making the contributions--you never have to tell them about the account at all. Just wait until you're ready to hand it over to them. Or heck, put it in your will. "BTW, your retirement account is fully funded--here's the bank/acct number." it was your money--they may legally have access to it, but I don't see why morally you can't just not tell them about it.
You do have to tell their parents until the age of majority and them after the age of 14 "Section 12(e)". It "was" your money, but contributions are irrevocable gifts "Section 4" the second they happen. It is now their money that you have a fiduciary responsibility to them for.

SECTION 4. TRANSFER BY GIFT OR EXERCISE OF POWER OF APPOINTMENT.
A person may make a transfer by irrevocable gift to, or the irrevocable exercise of a power of appointment in favor of, a custodian for the benefit of a minor pursuant to Section 9.

SECTION 12. CARE OF CUSTODIAL PROPERTY.
(e) A custodian shall keep records of all transactions with respect to custodial property, including information necessary for the preparation of the minor's tax returns, and shall make them available for inspection at reasonable intervals by a parent or legal representative of the minor or by the minor if the minor has attained the age of 14 years.

SECTION 13. POWERS OF CUSTODIAN.
(b) This section does not relieve a custodian from liability for breach of Section 12.

SECTION 20. TERMINATION OF CUSTODIANSHIP.
The custodian shall transfer in an appropriate manner the custodial property to the minor or to the minor's estate upon the earlier of:
(1) the minor's attainment of 21 years of age* with respect to custodial property transferred under Section 4 or 5;
(2) the minor's attainment of [majority under the laws of this State other than this [Act]] [age 18 or other statutory age of majority of Enacting State] with respect to custodial property transferred under Section 6 or 7; (custodianships as substitutes for conservatorships) or
(3) the minor's death.

*Or as designated by your state's statutes.
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LadyGeek
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Re: Roth IRA for kids

Post by LadyGeek »

The wiki has some background info: Uniform Gift to Minors Act
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Re: Roth IRA for kids

Post by earlywynnfan »

FWIW, my oldest, who I'm going through all this for, is putting half of her earnings into a special account to keep for "something big." Big being a house, help pay for college, maybe her first (non-hand me down) car. Since she's also putting some of her own cash aside to get a slightly vintage model I-phone, I don't think she's going to blow her money. She's cheap like her father. (This is the kid who said "Dad, it'd be dumb not to go to the local community college for the first two years instead of going away to an expensive college for all four.") Therefore, I will be putting some money into an IRA for her yearly (she's also earning a portion of that by working with us in our own business.) I feel she has earned the money, and also the confidence that she'll know what to do with it.

To kchnew: I just started the process today to open an UTMA account for her through Fidelity. Supposedly I can do it all online, step one was our basic info, I'll keep you updated if you want.

Ken
Bacchus01
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Re: Roth IRA for kids

Post by Bacchus01 »

kchnew wrote: Thu Dec 13, 2018 5:12 pm Question to snowman:

I tried to open a Roth IRA for kid, and could not find the link to open the minor account. So I send a message to Vanguard support and was told to open an account for minor, I have to send paper application through mail. You mentioned you did everything online. How did you do it? any link? Thanks ahead.
I had to do it via mail earlier this year
kchnew
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Re: Roth IRA for kids

Post by kchnew »

thanks a lot! I am going to open a roth IRA for minor online at fidelity, even though I like to invest in vanguard ETF. The response #3 from Vanguard to my question, as shown below, was really confusing to me. As Spirit Rider pointed out, in our scenario, the W-2 wage for my kid under 18, is not subject to FICA and FUTA, and also below the standard deduction for filing his own income return.

As a custodian, you can open a Roth or traditional IRA on behalf of a minor
when the following requirements are met:

* The minor has earned income, such as employer wages or a salary. (You
don't need to document this income on a W-2 form.)

* The earned income at least equals the IRA contributions.

* A tax return is filed (even if the minor doesn't earn enough to pay
federal taxes)
. For more information, please refer to IRA Publication 929,
"Tax Rules for Children and Dependents."
Terri-bh
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Re: Roth IRA for kids

Post by Terri-bh »

Bacchus01 wrote: Thu Dec 13, 2018 10:00 pm
kchnew wrote: Thu Dec 13, 2018 5:12 pm Question to snowman:

I tried to open a Roth IRA for kid, and could not find the link to open the minor account. So I send a message to Vanguard support and was told to open an account for minor, I have to send paper application through mail. You mentioned you did everything online. How did you do it? any link? Thanks ahead.
I had to do it via mail earlier this year
Ugh. How long did that take them to process? I wonder if it can just be faxed.
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Re: ROTH Ira for kids

Post by Terri-bh »

Spirit Rider wrote: Thu Dec 13, 2018 8:00 pm A lot of the comments on here reflect a misunderstanding of just what a UTMA account is, reflect dishonest and unethical behavior and are direct violations of the act. UTMA statutes are based on a model act from the Uniform Law Commision. States may make small modifications to comport with their existing laws or items such as the age of termination. You can check your state's UTMA statute, but these issues are not likely to vary.
Thanks for the info. Appreciate it.


Also, was assuming that parents were only contributing for minors. I figured after they were adults they had to contribute on their own, though I hadn't looked into it.
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Re: Roth IRA for kids

Post by Spirit Rider »

kchnew wrote: Thu Dec 13, 2018 11:46 pm * A tax return is filed (even if the minor doesn't earn enough to pay
federal taxes)
. For more information, please refer to IRA Publication 929,
"Tax Rules for Children and Dependents."
This response from Vanguard should be confusing because it is simply not true. If you check Pub 929 (their reference), under Should a return be filed even if not required? There is no such requirement.

In fact, I did this for my youngest ten years ago. The IRS sent a notice essentially saying; " This return was not needed, please don't waste our time.

As long as you have evidence of compensation, that is all that is required. There is absolutely no need to file an unnecessary tax return.
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Re: ROTH Ira for kids

Post by Spirit Rider »

Terri-bh wrote: Fri Dec 14, 2018 12:12 am
Also, was assuming that parents were only contributing for minors. I figured after they were adults they had to contribute on their own, though I hadn't looked into it.
Actually, anyone can contribute to an existing IRA account on behalf of someone else. Assuming the custodian allows it and you coordinate with the account owner so there isn't excess contributions.
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Re: Roth IRA for kids

Post by Bacchus01 »

Terri-bh wrote: Fri Dec 14, 2018 12:11 am
Bacchus01 wrote: Thu Dec 13, 2018 10:00 pm
kchnew wrote: Thu Dec 13, 2018 5:12 pm Question to snowman:

I tried to open a Roth IRA for kid, and could not find the link to open the minor account. So I send a message to Vanguard support and was told to open an account for minor, I have to send paper application through mail. You mentioned you did everything online. How did you do it? any link? Thanks ahead.
I had to do it via mail earlier this year
Ugh. How long did that take them to process? I wonder if it can just be faxed.
I remember it taking just a couple days after I mailed it. Quite fast actually.
snowman
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Re: Roth IRA for kids

Post by snowman »

kchnew wrote: Thu Dec 13, 2018 5:12 pm Question to snowman:

I tried to open a Roth IRA for kid, and could not find the link to open the minor account. So I send a message to Vanguard support and was told to open an account for minor, I have to send paper application through mail. You mentioned you did everything online. How did you do it? any link? Thanks ahead.
My apologies, kchnew! I went online, but did not see the option to select Roth IRA for minors. So I called Vanguard for instructions on how to transfer minor Roth IRA account from TDA. I was told that process for custodian IRA account is slightly different for legal reasons (don’t remember specifics).

I was told to open account online and follow all steps, including the transfer of assets in kind section, just like when opening regular account. Than, instead of submitting the form online, choose to print, sign, and mail it. I did that, and a few days later the account showed up online – I could see it under my login. Assets came in from TDA couple days later. It was pretty fast, I was surprised honestly.

So I apologize if I misstated the process. I remember doing it all online - transfer in kind, no paper statement, linking kid's checking account for contributions, assigning beneficiaries and such, but forgot about mailing the forms part. I do not know what the process is as of today. I would definitely call first and just follow their directions.
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Re: Roth IRA for kids

Post by J G Bankerton »

Bacchus01 wrote: Fri Dec 14, 2018 6:52 am
Terri-bh wrote: Fri Dec 14, 2018 12:11 am
Bacchus01 wrote: Thu Dec 13, 2018 10:00 pm
kchnew wrote: Thu Dec 13, 2018 5:12 pm Question to snowman:

I tried to open a Roth IRA for kid, and could not find the link to open the minor account. So I send a message to Vanguard support and was told to open an account for minor, I have to send paper application through mail. You mentioned you did everything online. How did you do it? any link? Thanks ahead.
I had to do it via mail earlier this year
Ugh. How long did that take them to process? I wonder if it can just be faxed.
I remember it taking just a couple days after I mailed it. Quite fast actually.
When I opened Roth IRAs for my adult children it got a bit involved. There were papers that had to be notarized and mailed back to Vanguard. Vanguard has to keep things legal.
Bacchus01
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Re: Roth IRA for kids

Post by Bacchus01 »

J G Bankerton wrote: Fri Dec 14, 2018 11:25 am
Bacchus01 wrote: Fri Dec 14, 2018 6:52 am
Terri-bh wrote: Fri Dec 14, 2018 12:11 am
Bacchus01 wrote: Thu Dec 13, 2018 10:00 pm
kchnew wrote: Thu Dec 13, 2018 5:12 pm Question to snowman:

I tried to open a Roth IRA for kid, and could not find the link to open the minor account. So I send a message to Vanguard support and was told to open an account for minor, I have to send paper application through mail. You mentioned you did everything online. How did you do it? any link? Thanks ahead.
I had to do it via mail earlier this year
Ugh. How long did that take them to process? I wonder if it can just be faxed.
I remember it taking just a couple days after I mailed it. Quite fast actually.
When I opened Roth IRAs for my adult children it got a bit involved. There were papers that had to be notarized and mailed back to Vanguard. Vanguard has to keep things legal.
I don’t think there was a question about adult children. Adult children can just open their own online.
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J G Bankerton
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Re: Roth IRA for kids

Post by J G Bankerton »

Bacchus01 wrote: Sat Dec 15, 2018 7:21 am
I don’t think there was a question about adult children. Adult children can just open their own online.
My post was for information only. It gives some incite to Vanguards working and why they may require paper in the mail.
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GAAP
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Re: Roth IRA for kids

Post by GAAP »

Might want to check out http://irakids.com/ -- seems like a good resource for your situation.
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Re: Roth IRA for kids

Post by 6Pack »

Bacchus01 wrote: Thu Dec 13, 2018 10:00 pm
kchnew wrote: Thu Dec 13, 2018 5:12 pm Question to snowman:

I tried to open a Roth IRA for kid, and could not find the link to open the minor account. So I send a message to Vanguard support and was told to open an account for minor, I have to send paper application through mail. You mentioned you did everything online. How did you do it? any link? Thanks ahead.
I had to do it via mail earlier this year
I opened Roth IRAs for my kids (3, 5 and 7) this year. I had to do a paper application for all 3. I mailed the applications in one envelope and everything went through ok. I can manage their IRAs under my account online.
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