Child on payroll
Client has added his 16 year old child to payroll of his company. 401k wait period is 30 days which he has exceeded. Wages will be $6,000 annually.
No other earned income so he can contribute 100% of his wages to Roth 401k which company offers and also make a 2022 Roth IRA contribution of $6,000.
What am I missing seems like double dipping??
Permalink Submitted by William Tuttle on Fri, 2022-04-29 14:15
It is fully legitimate to make the IRA contributions. Only pre-tax 401k deferrals reduce W-2 Box 1 wages. W-2 Box 1 wages are one basis for IRA compensation.
However, 401k employee deferrals must come from compensation not already received and not until an employee deferral election has been received.
Also, employee deferrals can only be deducted from net pay after mandatory deductions (FICA, tax withholding, any share of pre-tax benefits, etc…).
The child should file a Form W-4 claiming exemption from withholding.