roth ira

Submitted by David Hogan on Tue, 2016-02-16 14:27

I have heard that if I pay my teenager for household chores and he reports that income by way of a w-2 and pays any tax he has the basis for putting money in a roth ira .

Does this sound correct?

Thanks



Submitted by Alan - IRA critic on Tue, 2016-02-16 16:12

  • IRA contributions must come from taxable compensation, and payments for household chores are not taxable compensation. Read this article:    http://fairmark.com/retirement/roth-accounts/contributions-to-roth-accounts/roth-iras-for-minors/
  • It is also not clear that issuing a W-2 for income that is not taxable income will necessarily reinforce your position when the W-2 is not required. Yet, many parents make Roth contributions for children with or without the unnecessary W-2 and the IRS rarely challenges them.

 



Submitted by David Hogan on Fri, 2016-02-19 13:51

 For several years I put money in a roth  for my child. We kept exact records and paid the minimum wage.we filed a tax return and attached a w-2.the last time we did this was in 2012. Is there a statute of limitations . He still has that money in a roth ira and would like to leave it there.What should I tell him to do so he does not get in trouble with the IRS. 



Submitted by David Hogan on Fri, 2016-02-19 14:37

we put the money in the roth . filed return with a w-2. is there a statute of limitations. what should we do with the roth ira now.



Submitted by Alan - IRA critic on Fri, 2016-02-19 16:52

There is no statute of limitations for an excess contribution. However, the IRS has not challenged these contributions and those of others making contributions for minors and further has no record of challenging excess contributions made several years back. Therefore, I would leave well enough alone at this point.



Submitted by David Hogan on Fri, 2016-05-20 10:06

I paid my minor son for work and kept a record.He was very young at the time and I worry about the iRS coming along years from now and penalizing him.He is no longer a minor and has put money in the Roth from a regular job with a w-2. He needs the money and wants to pull out his contributions but what about the earnings? Can he leave them in. He does not want to report the questionable earnings as a minor.Can he pull out all contributions and simply leave the earnings alone. As his finances improve, he will make future Roth contributions. Would he be better off closing the account and opening a new one later



Submitted by Alan - IRA critic on Fri, 2016-05-20 18:41

No need to close the account. He can withdraw up to the amount of his contributions tax and penalty free and leave the earnings in the Roth. He still must report the distribution on Form 8606, but there is no tax as long as he does not distribute more than the contributions. Note that while a problem with the early contributions is highly unlikely at this point, the removal of those contributions would stop any excise taxes as of the year of the distribution and eliminate a potential unlimited time frame for excise taxes to be levied. No problem in making future Roth contributions to the same account when he can afford it.



Add new comment

Log in or register to post comments