Roth IRAs for Minors
I have a client who opened up a Roth IRA for her grandson who is under 5 and has no earned income. Can she continue funding this or must she stop? What are the parameters to open up ROTH IRAs for Minors.
I have a client who opened up a Roth IRA for her grandson who is under 5 and has no earned income. Can she continue funding this or must she stop? What are the parameters to open up ROTH IRAs for Minors.
Permalink Submitted by Craig Larson on Fri, 2024-05-31 21:42
The child must have earned income to have a Roth IRA contribution made. Not advisable to continue funding and a CPA might be able to tell you what to do with existing account.
Permalink Submitted by Alan - IRA critic on Fri, 2024-05-31 21:52
If contributions have been made without the child having earned income, they are excess contributions and must be removed. If any of them were for years prior to 2023, the 6% excise tax for each year will be due until the year they are removed.
Note that allowances for doing household chores is not treated as earned income.
Permalink Submitted by BruceM on Sat, 2024-06-01 16:12
Yes, the contribution to the minor’s IRA, Traditional and/or Roth, is limited in 2024 to the lesser of $7,000 or the amount of the child’s earned income for the year. The IRA is titled as a guardian IRA until the minor reaches age 18 for most states.
Sources of earned income for minors as wages or contracted work that generate a W2 or 1099. However, many minors will do piecemeal work such as mowing lawns, walking dogs, baby sitting, etc, that don’t generate these confirmatory documents. For this the IRS asks the parent or guardian to keep a record of
The type of work
When the work was done
For whom the work was done
How much the child was paid
My favorite though are child actors, which has no minimum age….even newborns….used in advertising or TV commercials….are paid. Per Ziprecruiter, the average pay to a child or infant is $16.74 per hour for ‘work’ as a child model.