Roth IRA + 401(k) contribution
Child (minor) works for their parent’s business making $3000 for the year.
Parent’s intend on making a $3000 Roth IRA contribution on their child’s behalf.
Question
Assuming eligibility has been satisfied – can the minor also participate (i.e. make salary deferrals) in the 401(k) plan?
Thank you
Permalink Submitted by Alan - IRA critic on Thu, 2021-09-23 20:44
If the minor makes pre tax deferrals to the 401k, that will lower child’s earned income by the amount of those contributions, so the Roth IRA contribution is reduced or eliminated due to no earned income remaining. However, if the plan has a Roth 401k option, the minor could make Roth deferrals to the plan and earned income would not be reduced, enabling a Roth IRA contribution as well. The first step is determining if the 401k includes a designated Roth option, and if not then the minor must choose between a pre tax 401k contribution and the Roth IRA contribution.