Earned income for 9 year old

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Jimmy21
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Earned income for 9 year old

Post by Jimmy21 » Mon Apr 29, 2019 9:57 am

We want to start our 9 year old a roth ira. She has to show earned income. My wife babysits dogs. We are going to pay our daugher to help. My understanding is that we just nees to keep a log book of when shes worked and how much she has made. Does anyone have any advice on this or anything else i should know?

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TomatoTomahto
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Re: Earned income for 9 year old

Post by TomatoTomahto » Mon Apr 29, 2019 10:01 am

Do a search for threads on this. Most OPs decide that it isn’t worth the marginal (ha!) tax savings, considering that it smells funny even if you manage to stay within the law and that your teen could later spend it on tattoos.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: Earned income for 9 year old

Post by Flyer24 » Mon Apr 29, 2019 10:04 am

I personally wouldn’t do it until your child truly has earned income from a job. It just seems like too much of a gray area.

delamer
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Re: Earned income for 9 year old

Post by delamer » Mon Apr 29, 2019 10:17 am

If you aren’t going to issue a W-2 for your daughter and withhold payroll taxes or issue a 1099 and have her file a self-employment tax return, then your plan seems problematic.

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Jimmy21
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Re: Earned income for 9 year old

Post by Jimmy21 » Mon Apr 29, 2019 11:47 am

Im not really seeing your guy's point. As far as i read the law, as long as they earn less than $6,350, nothing is needed other than a logbook. I also dont see an IRS agent having a problem with my daughter walking dogs and picking up poop for a few hours a week. My wife isnt issues a w2 or a 1099 either, we still claim the income.

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Re: Earned income for 9 year old

Post by TomatoTomahto » Mon Apr 29, 2019 12:44 pm

Jimmy21 wrote:
Mon Apr 29, 2019 11:47 am
Im not really seeing your guy's point.
You asked and we expressed our opinions. Good luck.
Okay, I get it; I won't be political or controversial. The Earth is flat.

delamer
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Re: Earned income for 9 year old

Post by delamer » Mon Apr 29, 2019 12:46 pm

Jimmy21 wrote:
Mon Apr 29, 2019 11:47 am
Im not really seeing your guy's point. As far as i read the law, as long as they earn less than $6,350, nothing is needed other than a logbook. I also dont see an IRS agent having a problem with my daughter walking dogs and picking up poop for a few hours a week. My wife isnt issues a w2 or a 1099 either, we still claim the income.
Is your wife paying payroll taxes on her income?

Can you provide a link for the regulation that you referenced?

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Re: Earned income for 9 year old

Post by Katietsu » Mon Apr 29, 2019 12:48 pm

I am not as pessimistic as some of the others. But you will need to decide if it is worth it. You do need to follow the same rules, for the most part, as hiring any person. The main exception, off the top of my head, is social security tax.

You wife is the business owner and files a Sch C to report her income. Your daughter would be your wife’s employee or independent contractor. Your wife would indeed need to issue a W-2 or 1099 if the earned income exceeded $600. Not saying it is a big deal, but it is one of the rules you would need to concern yourself with should you move ahead.

I am not sure about your $6350 and a log book comment. I think the $6350 comes from the old tax law where that was the limit for earned income of a dependent before income taxes were owed. The number is no longer relevant in 2019. And the number was never relevant as far as required documentation, rules and regulations.

On a personal note, I would not be OK with my pet sitter or boarding facility paying a 9 year old for substantiative work in caring for my pet -for multiple reasons. You may wish to factor this in.
Last edited by Katietsu on Mon Apr 29, 2019 12:56 pm, edited 4 times in total.

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Re: Earned income for 9 year old

Post by mhadden1 » Mon Apr 29, 2019 12:49 pm

Smelly smell smell. Why play this game? Just spend the time getting credit card bonuses or something.
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Re: Earned income for 9 year old

Post by earlywynnfan » Mon Apr 29, 2019 12:54 pm

I'm one of those OP's who asked a Q like this. My wife and I have a small business so we use our children for odd jobs. We don't pay taxes because they are paid under $600 per year and are independent contractors. We keep a logbook for what they do. We then opened a Roth for each. They won't get rich with this, but it will start the process.

I understand where everyone is coming from about the kids being able to pull the money out for tattoos, drugs, whatever. My kids are mid-teens and (so far) quite responsible. Should that change and they go down the other path, I'll have much bigger worries than them wasting a few thousand dollars.

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Re: Earned income for 9 year old

Post by elcadarj » Mon Apr 29, 2019 1:35 pm

earlywynnfan wrote:
Mon Apr 29, 2019 12:54 pm
I'm one of those OP's who asked a Q like this. My wife and I have a small business so we use our children for odd jobs. We don't pay taxes because they are paid under $600 per year and are independent contractors. We keep a logbook for what they do. We then opened a Roth for each. They won't get rich with this, but it will start the process.
+1

Nothing smelly about it. Just keep good records and follow the tax laws. Wish my Roth started when I was 9.

https://www.nolo.com/legal-encyclopedia ... ldren.html

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Re: Earned income for 9 year old

Post by delamer » Mon Apr 29, 2019 2:09 pm

elcadarj wrote:
Mon Apr 29, 2019 1:35 pm
earlywynnfan wrote:
Mon Apr 29, 2019 12:54 pm
I'm one of those OP's who asked a Q like this. My wife and I have a small business so we use our children for odd jobs. We don't pay taxes because they are paid under $600 per year and are independent contractors. We keep a logbook for what they do. We then opened a Roth for each. They won't get rich with this, but it will start the process.
+1

Nothing smelly about it. Just keep good records and follow the tax laws. Wish my Roth started when I was 9.

https://www.nolo.com/legal-encyclopedia ... ldren.html
Interesting article, but it doesn’t address the issue of payroll taxes.

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Re: Earned income for 9 year old

Post by mhalley » Mon Apr 29, 2019 2:20 pm

A kid started a website about child IRAs here that might have info
http://irakids.com/

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Re: Earned income for 9 year old

Post by tampaite » Mon Apr 29, 2019 2:44 pm

Deleting my messages on this forum
Last edited by tampaite on Mon Jun 03, 2019 7:28 am, edited 1 time in total.

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Re: Earned income for 9 year old

Post by randomguy » Mon Apr 29, 2019 3:12 pm

mhadden1 wrote:
Mon Apr 29, 2019 12:49 pm
Smelly smell smell. Why play this game? Just spend the time getting credit card bonuses or something.

Credit card bonuses will not compound tax free for 70 years.😄 If the work is legit ( you pay her the same 10/hr you would pay someone else) your fine. If they don’t do the work, your off in fraud land.

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Re: Earned income for 9 year old

Post by staythecourse » Mon Apr 29, 2019 3:16 pm

Man if that was that easy I would pay my 1st grader money to total my copays from my office every day. She knows division at this point so would not be out of her actual abilities. Somehow I don't think the IRS would see that as legitimate though.

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Re: Earned income for 9 year old

Post by RickBoglehead » Mon Apr 29, 2019 3:18 pm

It won't pass the smell test, pun intended.

Many adults who do this don't pay FICA like they should (for their work, not the child's), maybe they put it down as MISC income, which is not valid. Is the wife providing coverage at people's homes for liability and workmen's comp insurance? Have you told your insurance company of your wife's job, for your liability umbrella? What are the child labor laws for children under a certain age including hours per week, time during day (not before X or after Y), etc?
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Re: Earned income for 9 year old

Post by Minty » Mon Apr 29, 2019 3:21 pm

I learned from another thread that "Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child." IRS link here. Of course, the work has to be legitimate.
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Re: Earned income for 9 year old

Post by Watty » Mon Apr 29, 2019 3:26 pm

Jimmy21 wrote:
Mon Apr 29, 2019 11:47 am
I also dont see an IRS agent having a problem with my daughter walking dogs and picking up poop for a few hours a week.
You can also run into complications with insurance companies. For example if your daughter is walking the dogs and she breaks a leg then your health insurance company may baulk at paying for that and want you to file a workmans comp claim against the business. If you had hired a stranger to do then work then that would be pretty valid.

If you don't have any workmans comp insurance then in addition to the money that can open up a whole can of worms with the state regulators.

There may be some exemptions from the child labor laws for a family business but that likely varies by state so you should check on the details in your state.

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Re: Earned income for 9 year old

Post by greg24 » Mon Apr 29, 2019 3:28 pm

Kind of a weird world where a dependent child can be an independent contractor.

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Re: Earned income for 9 year old

Post by jebmke » Mon Apr 29, 2019 3:30 pm

greg24 wrote:
Mon Apr 29, 2019 3:28 pm
Kind of a weird world where a dependent child can be an independent contractor.
When I was growing up I would have called it indentured servitude.
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Re: Earned income for 9 year old

Post by TomatoTomahto » Mon Apr 29, 2019 3:31 pm

I’m a lazy SOB, and a UTMA was good enough. Later, when the kids had earned income, I matched their earnings into a Roth.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: Earned income for 9 year old

Post by Sidney » Mon Apr 29, 2019 3:44 pm

If I am paying an adult to look after my dog, I don't expect that adult to sub-contract to anyone - much less a 9 year old.
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Re: Earned income for 9 year old

Post by Spirit Rider » Mon Apr 29, 2019 4:01 pm

Jimmy21 wrote:
Mon Apr 29, 2019 11:47 am
Im not really seeing your guy's point. As far as i read the law, as long as they earn less than $6,350, nothing is needed other than a logbook. I also don't see an IRS agent having a problem with my daughter walking dogs and picking up poop for a few hours a week. My wife isn't issued a W-2 or a 1099 either, we still claim the income.
You are not reading the law very well and neither is your wife's client or employer.

Based on the fact pattern presented of pet sitting in your home, your wife most likely should be classified as an independent contractor IC. If the pet owner pays your wife >= $600/year, they are violating IRS regulations by not filing a 1099-MISC (or a W-2 as an employee).

Your wife might be able to hire your 9 year old (depending on your specific state child labor laws). The 9 year old would be an employee of your wife's business and not a household employee. They would not be subject to FICA or unemployment insurance, but in many states your wife's business would have to pay workman's compensation insurance. Her business would most definitely have to file a W-2 if the 9 year old is paid >= $600/year.
greg24 wrote:
Mon Apr 29, 2019 3:28 pm
Kind of a weird world where a dependent child can be an independent contractor.
That is because they can't. It is almost never proper to classify your own children as ICs. You can almost never meet the Behavioral/Financial Control and Relationship of the Parties test. The one rare exception is that they have an established self-employed business servicing other clients. For example, they have their own self-employed business (grass cutting, snow blowing/shoveling, etc...) with their own equipment, doing business in the neighborhood and you hire them too.

I really don't know why we are getting so many of these posts lately about "inventing" earned income for Roth IRA contributions for younger and younger children. When it is far easier to fund a UTMA and build significant balances with tax-free tax gain harvesting.

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Re: Earned income for 9 year old

Post by GCD » Mon Apr 29, 2019 4:03 pm

tampaite wrote:
Mon Apr 29, 2019 2:44 pm

how young is too young? Can a 5 year old have earned income? a 2 year old?

Are you opening a Roth IRA for them under their own name/social?
My kids each got a baby modeling gig at around age 1. Yup, they have Roth IRAs under their own name and social. IMO,in the long run, it's a giant time suck and not worth it. We quit after they each did one job. Now that they are approaching mid-teens and can get real jobs we may try to get the Roth thing going again.

Sidney wrote:
Mon Apr 29, 2019 3:44 pm
If I am paying an adult to look after my dog, I don't expect that adult to sub-contract to anyone - much less a 9 year old.
And this is the big problem I see with the dog sitting thing. You can't just pay the kid to pick up a little poop now and then. She has to be doing some functional substantive work. It probably is the case that your wife's part time business doesn't actually need another employee.

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Re: Earned income for 9 year old

Post by Flyer24 » Mon Apr 29, 2019 4:09 pm

Sidney wrote:
Mon Apr 29, 2019 3:44 pm
If I am paying an adult to look after my dog, I don't expect that adult to sub-contract to anyone - much less a 9 year old.
Yea. I was thinking the same thing. Seems unfair to your wife’s clients to substitute. I just wouldn’t go through the hassle for something that probably won’t amount to more than a couple hundred dollars a year.

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Re: Earned income for 9 year old

Post by GCD » Mon Apr 29, 2019 4:13 pm

Spirit Rider wrote:
Mon Apr 29, 2019 4:01 pm
I really don't know why we are getting so many of these posts lately about "inventing" earned income for Roth IRA contributions for younger and younger children. When it is far easier to fund a UTMA and build significant balances with tax-free tax gain harvesting.
As someone who initially went down the Roth road, it's driven by good intentions and perhaps a lack of financial sophistication. I eventually came around, but it took trying out the baby modeling thing and doing a bit of reading. In fact, one of my first threads on this forum was asking for ideas on funding a Roth for a kid.

At least people are thinking and trying to be creative.

Roths are more widely known about than UTMAs and I think very few people know anything about tax harvesting. That's probably why more people ask about Roths.

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Re: Earned income for 9 year old

Post by telemetry » Mon Apr 29, 2019 4:45 pm

delamer wrote:
Mon Apr 29, 2019 2:09 pm
Interesting article, but it doesn’t address the issue of payroll taxes.
I see you have asked about this a few times and have had trouble getting a response.

If the parent runs a sole proprietorship (or if the child's parents run a two-person partnership) and if the child works for that business, payments for the child's services are exempt from social security and Medicare taxes. See IRS Publication 15 (2019), (Circular E), Employer's Tax Guide, section 3, "Family Employees", subheading "Child employed by parents":
Payments for the services of a child under age 18 who works for his or her parent in a trade or business aren't subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. If these payments are for work other than in a trade or business, such as domestic work in the parent's private home, they’re not subject to social security and Medicare taxes until the child reaches age 21. However, see Covered services of a child or spouse , later. Payments for the services of a child under age 21 who works for his or her parent, whether or not in a trade or business, aren't subject to FUTA tax. Payments for the services of a child of any age who works for his or her parent are generally subject to income tax withholding unless the payments are for domestic work in the parent's home, or unless the payments are for work other than in a trade or business and are less than $50 in the quarter or the child isn't regularly employed to do such work.
You can read this material online at https://www.irs.gov/publications/p15#en ... 1000202300 or a brief IRS summary of the rules at https://www.irs.gov/businesses/small-bu ... amily-help . (We pay a nanny and try very hard to comply with all relevant laws, so I have read Publication 15 cover-to-cover a few times...)

While payments are subject to income tax withholding, the actual amount of tax owed may be very low.

I have been considering something similar since the birth of my child and while I don't currently have a home business that he could help out with, if the opportunity arose I would seriously consider it. If we're going to do it, though, he's going to do actual work which has value -- I think there is an important lesson here which helps develop independence and good financial and life skills, and the Roth IRA assets are just a nice ancillary perk.

Complications include the need to file an accurate tax return annually for the child, the potential increased risk of audit (since the situation is unusual and frankly ripe for abuse), and the small extra overhead of keeping track of a custodial Roth IRA.

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Re: Earned income for 9 year old

Post by dratkinson » Mon Apr 29, 2019 5:48 pm

GCD wrote:
Mon Apr 29, 2019 4:13 pm
...
As someone who initially went down the Roth road, it's driven by good intentions and perhaps a lack of financial sophistication. I eventually came around, but it took trying out the baby modeling thing and doing a bit of reading. ...
Curious.
--Is a tax return required to match against every Roth contributions?
--Is there ever a time when a Roth contribution can be made and a tax return is not required?
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Re: Earned income for 9 year old

Post by mariezzz » Mon Apr 29, 2019 6:02 pm

tampaite wrote:
Mon Apr 29, 2019 2:44 pm
earlywynnfan wrote:
Mon Apr 29, 2019 12:54 pm
I'm one of those OP's who asked a Q like this. My wife and I have a small business so we use our children for odd jobs. We don't pay taxes because they are paid under $600 per year and are independent contractors. We keep a logbook for what they do. We then opened a Roth for each. They won't get rich with this, but it will start the process.
how young is too young? Can a 5 year old have earned income? a 2 year old?
All those questions have been asked, and answered, in other threads. It all depends on the circumstances! For example, a 2 year old can get earned income through modeling fees.

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Re: Earned income for 9 year old

Post by GCD » Mon Apr 29, 2019 6:11 pm

dratkinson wrote:
Mon Apr 29, 2019 5:48 pm
GCD wrote:
Mon Apr 29, 2019 4:13 pm
...
As someone who initially went down the Roth road, it's driven by good intentions and perhaps a lack of financial sophistication. I eventually came around, but it took trying out the baby modeling thing and doing a bit of reading. ...
Curious.
--Is a tax return required to match against every Roth contributions?
--Is there ever a time when a Roth contribution can be made and a tax return is not required?
No and yes. The requirement is earned income, not taxable income. We deposited the entirety of their pay, several hundred dollars each, and ate the agent's fee and other expenses. We never filed a tax return for them because it was way below the threshold. For minors, banks get particular and quibble about documentation, more than they probably would for an adult. Since we had tons of other documentation and a check from a modeling agency it wasn't hard to explain where the income came from.

For anyone thinking of opening up a Roth for a minor, be aware that banks and investment companies are full of idiots who will tell you things like "a minor can't have an IRA." It is a real ______ chore to deal with these people. It just adds an extra layer of hassle to the whole ordeal.

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Re: Earned income for 9 year old

Post by yeledbed » Mon Apr 29, 2019 6:12 pm

Spirit Rider wrote:
Mon Apr 29, 2019 4:01 pm
Jimmy21 wrote:
Mon Apr 29, 2019 11:47 am
Im not really seeing your guy's point. As far as i read the law, as long as they earn less than $6,350, nothing is needed other than a logbook. I also don't see an IRS agent having a problem with my daughter walking dogs and picking up poop for a few hours a week. My wife isn't issued a W-2 or a 1099 either, we still claim the income.
You are not reading the law very well and neither is your wife's client or employer.

Based on the fact pattern presented of pet sitting in your home, your wife most likely should be classified as an independent contractor IC. If the pet owner pays your wife >= $600/year, they are violating IRS regulations by not filing a 1099-MISC (or a W-2 as an employee).
I'm confused by this. When does someone transition from being a "client paying for services" to "hiring an IC/employee" and being responsible for issuing a 1099? For example, I'm going to hire a contractor to remodel my kitchen. I'm going to pay him A LOT more than $600. It would never occur to me to issue a 1099, and I don't think in that case I would be required to. I would think also, that someone hiring Jimmy21's wife's business would also assume they are paying for services rendered and not paying an income, per se. Can you clarify this? Point me to the right IRS publication?

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Re: Earned income for 9 year old

Post by abuss368 » Mon Apr 29, 2019 6:16 pm

Is there an age requirement?
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Re: Earned income for 9 year old

Post by randomguy » Mon Apr 29, 2019 6:35 pm

GCD wrote:
Mon Apr 29, 2019 4:13 pm
Spirit Rider wrote:
Mon Apr 29, 2019 4:01 pm
I really don't know why we are getting so many of these posts lately about "inventing" earned income for Roth IRA contributions for younger and younger children. When it is far easier to fund a UTMA and build significant balances with tax-free tax gain harvesting.
As someone who initially went down the Roth road, it's driven by good intentions and perhaps a lack of financial sophistication. I eventually came around, but it took trying out the baby modeling thing and doing a bit of reading. In fact, one of my first threads on this forum was asking for ideas on funding a Roth for a kid.

At least people are thinking and trying to be creative.

Roths are more widely known about than UTMAs and I think very few people know anything about tax harvesting. That's probably why more people ask about Roths.
ROTHs are far superior to UTMAs for almost every purpose so it is pretty easy to see why people want them. At best over the next 80 years your kid never makes enough money to pay taxes (in my state that will be about 6k of income) and they might be even. I sort of doubt that is a realistic case.

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Re: Earned income for 9 year old

Post by GCD » Mon Apr 29, 2019 6:48 pm

randomguy wrote:
Mon Apr 29, 2019 6:35 pm
GCD wrote:
Mon Apr 29, 2019 4:13 pm
Spirit Rider wrote:
Mon Apr 29, 2019 4:01 pm
I really don't know why we are getting so many of these posts lately about "inventing" earned income for Roth IRA contributions for younger and younger children. When it is far easier to fund a UTMA and build significant balances with tax-free tax gain harvesting.
...Roths are more widely known about than UTMAs and I think very few people know anything about tax harvesting. That's probably why more people ask about Roths.
ROTHs are far superior to UTMAs for almost every purpose so it is pretty easy to see why people want them. At best over the next 80 years your kid never makes enough money to pay taxes (in my state that will be about 6k of income) and they might be even. I sort of doubt that is a realistic case.
If you look at financial return in a vacuum a Roth is great. But if you look at the hassle of funding it for a minor who is too young to get a real job and the realistically tiny amounts you can put in it, the shine dissipates.

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Re: Earned income for 9 year old

Post by earlywynnfan » Tue Apr 30, 2019 10:01 am

GCD wrote:
Mon Apr 29, 2019 6:48 pm
randomguy wrote:
Mon Apr 29, 2019 6:35 pm
GCD wrote:
Mon Apr 29, 2019 4:13 pm
Spirit Rider wrote:
Mon Apr 29, 2019 4:01 pm
I really don't know why we are getting so many of these posts lately about "inventing" earned income for Roth IRA contributions for younger and younger children. When it is far easier to fund a UTMA and build significant balances with tax-free tax gain harvesting.
...Roths are more widely known about than UTMAs and I think very few people know anything about tax harvesting. That's probably why more people ask about Roths.
ROTHs are far superior to UTMAs for almost every purpose so it is pretty easy to see why people want them. At best over the next 80 years your kid never makes enough money to pay taxes (in my state that will be about 6k of income) and they might be even. I sort of doubt that is a realistic case.
If you look at financial return in a vacuum a Roth is great. But if you look at the hassle of funding it for a minor who is too young to get a real job and the realistically tiny amounts you can put in it, the shine dissipates.
Really? I'm planning on about 5 years of about $500 per. Put into a CIC at 7%, after 45 years that becomes around $80K. Not millions, but a pretty good return on $2500, and much more valuable than an ipod or new clothes. And that's not including the extra lesson on saving vs. spending.

My hassle? A ledger on the work they do (which is legit), discussions with my accountant, and opening an account through Fidelity. Not much of a burden.

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Re: Earned income for 9 year old

Post by smitcat » Tue Apr 30, 2019 10:34 am

earlywynnfan wrote:
Tue Apr 30, 2019 10:01 am
GCD wrote:
Mon Apr 29, 2019 6:48 pm
randomguy wrote:
Mon Apr 29, 2019 6:35 pm
GCD wrote:
Mon Apr 29, 2019 4:13 pm
Spirit Rider wrote:
Mon Apr 29, 2019 4:01 pm
I really don't know why we are getting so many of these posts lately about "inventing" earned income for Roth IRA contributions for younger and younger children. When it is far easier to fund a UTMA and build significant balances with tax-free tax gain harvesting.
...Roths are more widely known about than UTMAs and I think very few people know anything about tax harvesting. That's probably why more people ask about Roths.
ROTHs are far superior to UTMAs for almost every purpose so it is pretty easy to see why people want them. At best over the next 80 years your kid never makes enough money to pay taxes (in my state that will be about 6k of income) and they might be even. I sort of doubt that is a realistic case.
If you look at financial return in a vacuum a Roth is great. But if you look at the hassle of funding it for a minor who is too young to get a real job and the realistically tiny amounts you can put in it, the shine dissipates.
Really? I'm planning on about 5 years of about $500 per. Put into a CIC at 7%, after 45 years that becomes around $80K. Not millions, but a pretty good return on $2500, and much more valuable than an ipod or new clothes. And that's not including the extra lesson on saving vs. spending.

My hassle? A ledger on the work they do (which is legit), discussions with my accountant, and opening an account through Fidelity. Not much of a burden.
We determined it was not worth the hassle or risks involved with our own business - our daughter had no problems getting a job outside while in HS and college which was used to fund the Roth.

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Re: Earned income for 9 year old

Post by GCD » Tue Apr 30, 2019 11:01 am

earlywynnfan wrote:
Tue Apr 30, 2019 10:01 am
GCD wrote:
Mon Apr 29, 2019 6:48 pm
If you look at financial return in a vacuum a Roth is great. But if you look at the hassle of funding it for a minor who is too young to get a real job and the realistically tiny amounts you can put in it, the shine dissipates.
Really? I'm planning on about 5 years of about $500 per. Put into a CIC at 7%, after 45 years that becomes around $80K. Not millions, but a pretty good return on $2500, and much more valuable than an ipod or new clothes. And that's not including the extra lesson on saving vs. spending.

My hassle? A ledger on the work they do (which is legit), discussions with my accountant, and opening an account through Fidelity. Not much of a burden.
We might be talking past each other. I'm referring to coming up with earned income for a kid under age 10 or so. Someone so young they can't mow lawns, deliver newspapers, etc. It's a lot of effort on the parent's part to come up with an employment scheme for a kid that age. For instance, modeling is more work for the parent than it is for the kid.

An IRA can be accessed penalty free at 59 1/2. So if you are talking about 45 years of growth you're talking about a kid age 9-14 for your age at contribution.

If you have your own business and think you have legitimate work for your kid, fantastic. I was saying I grew disenchanted with finding ways to create earned income for kids in the 6 month - 12 year old range. You're skirting the bottom end of that, but it's easier if you have an actual business to employ them in. Even if you have your own business I think it would be kind of difficult to employ a 6 year old at something.

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Re: Earned income for 9 year old

Post by earlywynnfan » Tue Apr 30, 2019 11:28 am

GCD wrote:
Tue Apr 30, 2019 11:01 am
earlywynnfan wrote:
Tue Apr 30, 2019 10:01 am
GCD wrote:
Mon Apr 29, 2019 6:48 pm
If you look at financial return in a vacuum a Roth is great. But if you look at the hassle of funding it for a minor who is too young to get a real job and the realistically tiny amounts you can put in it, the shine dissipates.
Really? I'm planning on about 5 years of about $500 per. Put into a CIC at 7%, after 45 years that becomes around $80K. Not millions, but a pretty good return on $2500, and much more valuable than an ipod or new clothes. And that's not including the extra lesson on saving vs. spending.

My hassle? A ledger on the work they do (which is legit), discussions with my accountant, and opening an account through Fidelity. Not much of a burden.
We might be talking past each other. I'm referring to coming up with earned income for a kid under age 10 or so. Someone so young they can't mow lawns, deliver newspapers, etc. It's a lot of effort on the parent's part to come up with an employment scheme for a kid that age. For instance, modeling is more work for the parent than it is for the kid.

An IRA can be accessed penalty free at 59 1/2. So if you are talking about 45 years of growth you're talking about a kid age 9-14 for your age at contribution.

If you have your own business and think you have legitimate work for your kid, fantastic. I was saying I grew disenchanted with finding ways to create earned income for kids in the 6 month - 12 year old range. You're skirting the bottom end of that, but it's easier if you have an actual business to employ them in. Even if you have your own business I think it would be kind of difficult to employ a 6 year old at something.
That makes more sense. My Brother-in-Law owns a company, we discussed him taking his toddlers' pics and using them as their screensavers or making advertising posters to hang at the business. Per my accountant this is totally legit, but it's a lot easier for him because he owns a larger service-type business as opposed to our in-home little gig.

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Re: Earned income for 9 year old

Post by GCD » Tue Apr 30, 2019 11:42 am

earlywynnfan wrote:
Tue Apr 30, 2019 11:28 am
My Brother-in-Law owns a company, we discussed him taking his toddlers' pics and using them as their screensavers or making advertising posters to hang at the business. Per my accountant this is totally legit, but it's a lot easier for him because he owns a larger service-type business as opposed to our in-home little gig.
Yup, before I had kids and spent a lot of effort pondering Roth contributions, I always wondered why so many dentists included pictures of their family in their advertising. Someone in the American Dental Society must have thrown the idea out in a trade journal or something.

My kids each made a couple hundred bucks modeling as babies. That was a couple hundred dollars an hour sitting in front of a camera. But by the time you factored in driving time in San Francisco, multiple auditions without getting a job, hours spent by mom creating a portfolio (vs. hiring a pro), etc., it all came out to less than minimum wage and was a huge drain on our family life.

We quit after the kids each got one job each. Wayyyy to much hassle for the return. Now if you had your own business and could cut out all the BS, different story.

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Re: Earned income for 9 year old

Post by Nate79 » Tue Apr 30, 2019 11:59 am

earlywynnfan wrote:
Tue Apr 30, 2019 10:01 am
GCD wrote:
Mon Apr 29, 2019 6:48 pm
randomguy wrote:
Mon Apr 29, 2019 6:35 pm
GCD wrote:
Mon Apr 29, 2019 4:13 pm
Spirit Rider wrote:
Mon Apr 29, 2019 4:01 pm
I really don't know why we are getting so many of these posts lately about "inventing" earned income for Roth IRA contributions for younger and younger children. When it is far easier to fund a UTMA and build significant balances with tax-free tax gain harvesting.
...Roths are more widely known about than UTMAs and I think very few people know anything about tax harvesting. That's probably why more people ask about Roths.
ROTHs are far superior to UTMAs for almost every purpose so it is pretty easy to see why people want them. At best over the next 80 years your kid never makes enough money to pay taxes (in my state that will be about 6k of income) and they might be even. I sort of doubt that is a realistic case.
If you look at financial return in a vacuum a Roth is great. But if you look at the hassle of funding it for a minor who is too young to get a real job and the realistically tiny amounts you can put in it, the shine dissipates.
Really? I'm planning on about 5 years of about $500 per. Put into a CIC at 7%, after 45 years that becomes around $80K. Not millions, but a pretty good return on $2500, and much more valuable than an ipod or new clothes. And that's not including the extra lesson on saving vs. spending.

My hassle? A ledger on the work they do (which is legit), discussions with my accountant, and opening an account through Fidelity. Not much of a burden.
The return is the taxes saved vs investing in a brokerage account, not the return of the investment ts themselves.

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Re: Earned income for 9 year old

Post by smitcat » Tue Apr 30, 2019 12:04 pm

earlywynnfan wrote:
Tue Apr 30, 2019 11:28 am
GCD wrote:
Tue Apr 30, 2019 11:01 am
earlywynnfan wrote:
Tue Apr 30, 2019 10:01 am
GCD wrote:
Mon Apr 29, 2019 6:48 pm
If you look at financial return in a vacuum a Roth is great. But if you look at the hassle of funding it for a minor who is too young to get a real job and the realistically tiny amounts you can put in it, the shine dissipates.
Really? I'm planning on about 5 years of about $500 per. Put into a CIC at 7%, after 45 years that becomes around $80K. Not millions, but a pretty good return on $2500, and much more valuable than an ipod or new clothes. And that's not including the extra lesson on saving vs. spending.

My hassle? A ledger on the work they do (which is legit), discussions with my accountant, and opening an account through Fidelity. Not much of a burden.
We might be talking past each other. I'm referring to coming up with earned income for a kid under age 10 or so. Someone so young they can't mow lawns, deliver newspapers, etc. It's a lot of effort on the parent's part to come up with an employment scheme for a kid that age. For instance, modeling is more work for the parent than it is for the kid.

An IRA can be accessed penalty free at 59 1/2. So if you are talking about 45 years of growth you're talking about a kid age 9-14 for your age at contribution.

If you have your own business and think you have legitimate work for your kid, fantastic. I was saying I grew disenchanted with finding ways to create earned income for kids in the 6 month - 12 year old range. You're skirting the bottom end of that, but it's easier if you have an actual business to employ them in. Even if you have your own business I think it would be kind of difficult to employ a 6 year old at something.
That makes more sense. My Brother-in-Law owns a company, we discussed him taking his toddlers' pics and using them as their screensavers or making advertising posters to hang at the business. Per my accountant this is totally legit, but it's a lot easier for him because he owns a larger service-type business as opposed to our in-home little gig.
"That makes more sense. My Brother-in-Law owns a company, we discussed him taking his toddlers' pics and using them as their screensavers or making advertising posters to hang at the business. Per my accountant this is totally legit, but it's a lot easier for him because he owns a larger service-type business as opposed to our in-home"

And per our accountant it is really not worth the potential upsides to run this through the business and onto the K1.
And we own a few larger non home based business's.
YMMV

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Re: Earned income for 9 year old

Post by swaption » Tue Apr 30, 2019 12:36 pm

Just because something is technically within the law, doesn't mean others won't look at it as fundamentally being tax fraud. No doubt there is a whole cottage industry around this type of thing. The IRS has been moving in the direction of looking at things based less on technical criteria and more based on fundamentals. My personal opinion is they should move faster.

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Re: Earned income for 9 year old

Post by GCD » Tue Apr 30, 2019 12:55 pm

swaption wrote:
Tue Apr 30, 2019 12:36 pm
Just because something is technically within the law, doesn't mean others won't look at it as fundamentally being tax fraud. No doubt there is a whole cottage industry around this type of thing. The IRS has been moving in the direction of looking at things based less on technical criteria and more based on fundamentals. My personal opinion is they should move faster.
"Legal" is a simpler way to say "technically within the law". Saves you three words and means the same thing.

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Re: Earned income for 9 year old

Post by White Coat Investor » Tue Apr 30, 2019 1:02 pm

Jimmy21 wrote:
Mon Apr 29, 2019 9:57 am
We want to start our 9 year old a roth ira. She has to show earned income. My wife babysits dogs. We are going to pay our daugher to help. My understanding is that we just nees to keep a log book of when shes worked and how much she has made. Does anyone have any advice on this or anything else i should know?
You've got to do all the official employee paperwork including proving she is a US citizen to the employer. Obviously if you're not now reporting the dogsitting business income, you'll have to start doing that. So long as the only owners of the business are parents and it isn't a corporation, the kid's reasonable salary is payroll tax free and almost surely income tax free and can then go into a Roth IRA.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: Earned income for 9 year old

Post by F150HD » Tue Apr 30, 2019 1:23 pm

We want to start our 9 year old a roth ira. She has to show earned income. My wife babysits dogs. We are going to pay our daugher to help. My understanding is that we just nees to keep a log book of when shes worked and how much she has made. Does anyone have any advice on this or anything else i should know?
Here we go! :P
Long is the way and hard, that out of Hell leads up to light.

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Re: Earned income for 9 year old

Post by Raabe34 » Tue Apr 30, 2019 1:24 pm

A lot of wet blankets on this post, which really isn't all that surprising.

I've done this for 4 years now with my now 11 yr old on the apartments I own. It's in a small town and we have to haul our own trash to the dump weekly. Kid helps with all parts of that process. Also shovels snow and assists with other work over there. Residents can verify the kid works and they get a kick out of seeing a kid do manual labor and if he earns 1-2k it's all legit. The payroll tax issue got covered by others but makes it worthwhile and the could get the tattoo with the UTMA money also.

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Re: Earned income for 9 year old

Post by TomatoTomahto » Tue Apr 30, 2019 4:20 pm

swaption wrote:
Tue Apr 30, 2019 12:36 pm
Just because something is technically within the law, doesn't mean others won't look at it as fundamentally being tax fraud. No doubt there is a whole cottage industry around this type of thing. The IRS has been moving in the direction of looking at things based less on technical criteria and more based on fundamentals. My personal opinion is they should move faster.
There were two doctors in my town, let’s call them A and B. A creates a scholarship that is awarded to offspring of B. A few years previously, B had created a scholarship awarded to offspring of, wait, spoiler alert, the child of A.

IMO, stinks to the heavens, but apparently legal, or at least difficult to prove as tax fraud. Both doctors, btw, had more than enough money to pay for their children’s educations.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: Earned income for 9 year old

Post by GCD » Tue Apr 30, 2019 4:36 pm

TomatoTomahto wrote:
Tue Apr 30, 2019 4:20 pm
There were two doctors in my town, let’s call them A and B. A creates a scholarship that is awarded to offspring of B. A few years previously, B had created a scholarship awarded to offspring of, wait, spoiler alert, the child of A.

IMO, stinks to the heavens, but apparently legal, or at least difficult to prove as tax fraud. Both doctors, btw, had more than enough money to pay for their children’s educations.
Interesting anecdote. I have often wondered if this sort of thing were rampant among private charitable trusts with low transparency. Hiring each others kids to administer them, etc.

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Re: Earned income for 9 year old

Post by swaption » Tue Apr 30, 2019 7:08 pm

TomatoTomahto wrote:
Tue Apr 30, 2019 4:20 pm
swaption wrote:
Tue Apr 30, 2019 12:36 pm
Just because something is technically within the law, doesn't mean others won't look at it as fundamentally being tax fraud. No doubt there is a whole cottage industry around this type of thing. The IRS has been moving in the direction of looking at things based less on technical criteria and more based on fundamentals. My personal opinion is they should move faster.
There were two doctors in my town, let’s call them A and B. A creates a scholarship that is awarded to offspring of B. A few years previously, B had created a scholarship awarded to offspring of, wait, spoiler alert, the child of A.

IMO, stinks to the heavens, but apparently legal, or at least difficult to prove as tax fraud. Both doctors, btw, had more than enough money to pay for their children’s educations.
Yup. I’ve seen too much stuff, mostly a career surrounded by folks playing games. Just because a money manager does not legally have to be a fiduciary, does that mean they don’t act in that manner? Is it ok for a bond trader to “rip a client’s face off”? Is it ok to offer a loan with all sorts of fees when far better terms should be available? If things are legal, are ethics irrelevant?

For whatever reason folks don’t put taxes in the same category. It’s been normalized. In substance your doctors above are committing fraud, and stealing from other tax payers. Implicit in an approach that only is governed by what is legal, is that ethics are irrelevant. That is a choice.

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