How can I start an IRA for my child?

By Steven Merkel AAA
A:

The Roth IRA is hands-down the most attractive retirement plan available for people with at least 15 or more years until retirement, since it provides tax-free withdrawals if you wait to withdraw funds until after age 59.5. The smart thing to do is to start contributions while you or your children are very young, which allows compounded growth for possibly another 30-40 years before you/they would consider using the funds in retirement. The tricky part is convincing your teenagers or young adults to start saving early and meeting the requirements of earned income to qualify for IRA contributions.

So, how can you start a Roth IRA for your teenage daughter if she doesn't have a job with earned income? One option is to hire her at home within the family business (self-employed), as a file clerk or marketing assistant, for example. In this scenario, you can benefit twofold by receiving a deduction from business income, and you can make a contribution to your child's retirement. If you're not self-employed, you can still hire your child and pay them via W-2 or 1099-MISC income for cleaning the house or doing other odd jobs around the house - just make sure you document everything carefully, and put the pay directly into the Roth IRA. Since the child is working for the parents at home, no child labor laws are in violation.

Once your child starts gainful employment outside of the home or summer work between school breaks, you can still gift an amount equal to the Roth IRA contribution to the child and deposit this amount into a Roth account for them just as long as their compensation is equal to or greater than the gift.

For additional reading, check out Roth Or Traditional IRA...Which Is The Better Choice?and Roth IRA: Back To Basics.

This question was answered by Steven Merkel

RELATED FAQS

  1. How do deferred tax assets help in meeting retirement goals?

    Learn how tax deferred assets can help individuals achieve long-term financial goals such as retirement and how they differ ...
  2. What are the most common deferred tax assets used by individuals?

    Use these deferred tax assets to reduce your tax liability and grow your assets simultaneously. Discover the most common ...
  3. How can I avoid paying taxes on my Social Security income?

    Learn how to calculate the percentage of Social Security income benefits that may be taxable, and discover strategies to ...
  4. What are some examples of common fringe benefits?

    Learn how offering fringe benefits can be a strategic recruitment and retention tool for employers and drastically increase ...
RELATED TERMS
  1. Gold IRA

    Definition of Gold IRA
  2. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
  3. Provident Fund

    A compulsory, government-managed retirement savings scheme used ...
  4. Rollover IRA

    A special type of traditional individual retirement account into ...
  5. Retirement Money Market Account

    A money market account that an individual holds within a retirement ...
  6. SIMPLE IRA

    A retirement plan that can be used by most small businesses with ...

You May Also Like

Related Articles
  1. Professionals

    Why Retirement Advice Is Better But ...

  2. Professionals

    Ways To Cut 401(k) Expenses

  3. Professionals

    Tread Carefully With Retirement Plan ...

  4. Professionals

    Required Minimum Distributions: A Reminder

  5. Retirement

    How To Start Saving For Retirement

Trading Center