Child Roth IRA

Submitted by Jason Hochstadt on Thu, 2018-07-05 00:52

Good Evening,

1. What is the earliest/youngest age you have seen a Roth IRA established for a child based upon that child generating earned income?

2. If a child is 6 years of age and her mother is a dentist, and the mother plans on using pictures of the daughter akin to a model for other parents as patients to promote bringing their children, must the dentist inquire of a talent or modeling agency to find out the equivalent cost for a ‘picture shoot’ to justify wages paid to the 6-year old daughter? The purpose of such is to get an early start on the child having a Roth IRA.

Thanks!

Jason



Submitted by Alan - IRA critic on Thu, 2018-07-05 03:08

Have heard reports of contributions for a child younger than 6. If the child is paid a reasonable amount and a W-2 is issued, the IRS is probably not going to challenge the income being taxable, as might be the case for household chores.

Submitted by William Tuttle on Thu, 2018-07-05 23:31

  • As Alan said, you have to establish a Fair Market Value (FMV) for that employment. An independent basis for that FMV would be helpful. I know of babies and toddlers used as models for their parent’s businesses. I have never hear of the IRS challenging a single one. 
  • It is more challenging to hire young children for actual work tasks. Not only must the FMV test be met, but the tasks must necessary for the business and the productivity even at minimum wage must be reasonably comparable to another likely employee.
  • In the only age specific ruling I am aware of, the tax court stated that an eight (8) year old folding napkins, setting tables, getting menus and escorting customers to tables in a family restaurant was deemed a legitimate employee with reasonable productivity.
  • This ruling did not preclude younger children, but established the minimum performance rquirements. You can not hire a young child who would take ten (10) times as long as another minimum wage employee.
  • However, my favorite Chinese food restaurant has always had their young children performing menial tasks. I don’t know if they paid them as employees, but from the age of 4-5 they were helping mom & dad in the restaurant. In my mind they would have certainly qualified. The oldest is now in college, but still helps during breaks and the summer.

Add new comment

Log in or register to post comments