Roth IRA for Minors
I was reading a paper about opening Roth IRA for minors. If a minor helps in cooking, filing, gardening, grocery bagging, household cleaning, lawn mowing, news paper delivering, painting, emailing etc parent can pay their child and that money can be saved in Child’s Roth IRA with match. I live in New York City and can do this in New York City. My son is only 11 years. How about child labor law?
Permalink Submitted by Alan - IRA critic on Thu, 2016-04-07 03:43
The IRS has not issued guidance on this question, and have looked the other way for years. However, technically these payments are not taxable compensation and no minor is expected to report such income on a return, and parents do not issue W-2 forms for allowances paid to minors. An IRA contribution is only allowed for taxpayers who have taxable compensation, other than spousal contributions.
Permalink Submitted by Nathan Kastner on Thu, 2016-04-07 13:37
As mentioned prior, IRS regs require that the roth contributor (or his/her spouse) have “taxable compensation”. Since this allowance you are paying the 11-year old is not being reported as taxable income, and no w-2 is being issued, your child lacks “taxable compensation”.Logistically, by the way, when a contribution is made to a qualified retirment plan, the custodian holding the funds will generate a form 5498. They may or may not send you a copy, but they always send one to the IRS. That form will detail any money was contributed and/or rolled over. When the IRS gets that form, sees that there were contributions made, but then also sees no taxable compensation reported for that same SSN, you will likely have trouble on your hands.