Starting ROTH IRA Early

Why can’t I pay my children for doing household chores and then invest this money in an IRA for them as earned income?



You probably could, but there is no clear authority on this matter. The potential sticking point is that money paid to minor family members is not really taxable compensation and virtually no one reports this income. However, if you keep records on what work is done and pay no more than a reasonable hourly wage, there is very little chance the IRS will challenge the Roth contribution. The IRS has shown no inclination whatsoever to even define whether this income should be reported as taxable income.

Remember that the child has an irrevocable legal right to these funds upon reaching the age of majority.



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