-- Can I open a Roth IRA for my child if I pay him an allowance to do chores around the house?
-- We are paying our eldest daughter to teach weekly piano lessons to her two younger sisters. Can we keep a record of the money we have paid her and match that amount in a Roth IRA for her?
No to the first question, yes to the second.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Opening a Roth IRA for your child is a great idea (see Why Your Kids Need a Roth IRA to learn more). But you can't open one unless your child has earned income from a job. And giving your child an allowance in return for doing chores around the house doesn't count as earned income.
It's legal to hire a child to do a specific job in your home. But there's a fundamental difference between, say, a domestic employee who regularly cleans your house and a child who is asked to make his bed.
On the other hand, hiring your daughter to teach weekly piano lessons would likely pass muster with the IRS. But your instincts are correct: Your daughter would have to do the job on a regular basis and you'd have to keep meticulous records of the money you paid her.
Income from a steady job such as babysitting or lawn mowing also counts as earned income. But it's preferable if your child works for a family other than your own. And whenever kids don't get a Form W-2, they should keep a record of the date of each job, the person who employed them and the amount they earned.
If you own your own business, you can employ your children, pay them salary and open a Roth IRA on their behalf. But the kids must be doing real work, and you should pay them a reasonable wage. Pay their salary with a check drawn on a business account, and file a Form W-2 reporting the kids' earnings to the Social Security Administration.
The toughest thing about opening a Roth for a child may be finding someone willing to take the money. Mutual fund companies and others may be reluctant to open an account for a child because minors can't legally enter into binding contracts.
But many financial-services companies are willing to open IRAs for kids. Among them are Merrill Lynch, Charles Schwab and TD Ameritrade, and the American Century, T. Rowe Price, Strong and Vanguard mutual fund families.
-
Here's How To Get Organized And Work For YourselfWhether you’re looking for a side gig or planning to start your own business, it has never been easier to strike out on your own. Here is our guide to navigating working for yourself.
-
How to Manage Risk With Diversification"Don't put all your eggs in one basket" means different things to different investors. Here's how to manage your risk with portfolio diversification.
-
How to Motivate Kids to Savepersonal finance It's not easy teaching your child to save. Here are some ways readers have incentivized their kids to keep track of their finances.
-
Lessons for Kids From the Crisissavings One of the greatest opportunities presented by the pandemic is to give children an appreciation for the workings of the economy.
-
Why Financial Education Workscollege Money skills learned young will pay off in the long run.
-
The Tooth Fairy Is Leaving Less Under Pillows These Dayssavings The average amount that the Tooth Fairy gives kids is down 10% from last year.
-
The Value Test: 300 Colleges That Pass
College Rankings All the schools on our list, from 1 to 300, are best values.
-
6 Ways to Get Your Kids to Do Chores Without Paying Themspending Kids shouldn't be paid for doing routine tasks, but for doing extra jobs that parents define as above and beyond.
-
Save $1 for College, Cut $2 in Debt
college Paying for college doesn't mean you have to take out thousands in student loans.
-
Back-to-School Money Tips for College Students
college Kiplinger's summer 2015 interns offer advice on managing your finances as a student.
