Minor Roth IRA

Submitted by Matthew Ottusch on Mon, 2024-01-29 17:05

Client would like to set up a Minor Roth IRA for a child that recently started working. Child is 12 years old.

What are the considerations for this account? Are the parents able to make contributions on the child’s behalf, up to the amount of earned income the child has for the year? At what age does the account becoming individually owned by the child?



Submitted by Alan - IRA critic on Mon, 2024-01-29 19:17

Some custodians will not accept such IRAs for minors, but there are plenty that do. The account will be setup with you as custodian for the minor, and you can make the contributions if minor has earned income. Household chores done at home do not qualify because payments to the child are not treated as taxable comp.  Child will acquire fullauthority over the account when they reach the age of majority in your state.              

Submitted by Matthew Ottusch on Mon, 2024-01-29 19:34

Thank you. So for example, if the child earns $3k in a year (non-housechores income), the parents can contribute $3k to the Roth on his/her behalf?

Submitted by Alan - IRA critic on Mon, 2024-01-29 20:18

Yes, if the Roth is opened at a custodian who will accept contributions for minors. 

Submitted by gautam shah on Fri, 2024-02-02 11:53

can grandparent set up ROTH IRA if child earned income from baby sitting for aunt”s kid? how to document properly for tax purpose and does that income need to be reported in tax form.can parent be named guardian of account

Submitted by William Tuttle on Fri, 2024-02-02 23:55

  1. Any adult can set up UTMA Roth IRA or any UTMA account for a minor.
  2. Income for a child to babysit younger siblings would be normally considered a family chore and be considered compensation eligible for IRA contributions. However, such income for babysitting an aunt’s child could legitimately be considered earned income.
  3. If the babysitting is done in the aunt’s house, this would be considered household help.
  4. Most people try to do this “under the table” when it is totally counter-productive.
  5. They don’t realize no FICA taxes (Social Security & Medicare) is required for household help who are students and < than age 18 and no unemployment insurance if < age 21.
  6. Therefore, no payroll has to be run. Although, the wages should be documented. It would be best if wages were not paid in cash. It would be better to pay by check or an electronic method such as Venmo, Zelle, etc…
  7. The only reporting necessary is a Form W-2 filed by 1/31 of the following year for anyone paid > $600. There are websites that will file this for ~$10.
  8. Unfortunately, the  W-2 filing deadline for 2023 was  01/31/24. However, the aunt might not want to file for 2024, because the late filing penalty for <= 30 days of 1/31 is $60, it jumps to $120 > 30 days  <= 8/1 and $310 > 8/1
  9. Of course, you could reimburse the aunt for the penalty any minimal filing fee.
  10. The adult that opens any UTMA account is the guardian. If you want one of the parents to be guardian, they should open the account. How ever, once opened anyone can make gifts to the account.
  11. See IRS Publication 926 for details on household help.

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