Glad it was helpful! I wish my parents would have had access to this for me all those years I worked at concession stands, umpired baseball games, worked summer jobs at restaurants washing dishes, cooking white fish in Charlevoix, MI but the ROTH IRA was only established in 1997 after I went to college. Help your kids where you can! Cheers.
Great informational video! My 15-year old grandson had a summer job at a car dealership and will again when he has a school break this fall. I hope to fund a Roth account for him as I also opened and funded Roth accounts for my 2 daughters in 2020. Question: if the Roth accounts ever drop below what ever was contributed due to market down turns, would this impact how much they would have access to? My daughters' accounts were given $12k total for 2020 and 2021, but I saw their accounts this year were less than the $12k. I trust my girls and grandson would not tap into their Roth accounts prior to retirement, but emergencies do occur. Thank you!
That is so awesome to hear @gary demille! Thanks for sharing. You always have access to the amount you contributed without taxes and penalties because it was an after-tax contribution.... as long as you have the proof of contribution (documentation). And.. that documentation can get lost over time, so be mindful. If the account is lower than the contribution, it could all be withdrawn in an emergency. I hope that helps. The power of compounding for a child's Roth IRA is huge.
This was very useful, thank you! Is the earned income taxed? My son has made a couple hundred this year babysitting his cousins. Will he have to file any taxes or does the $600 cap still apply?
Thanks for watching and the comment @marthanna mcGaw. The answer is "it depends". It completely depends upon your son's situation. The standard deduction for 2022 is $12,950 so total income less than that doesn't have income taxes. However, there could potentially be sefl-employment tax. He may or may not need to file a tax return. Numbers change each tax year. This channel is for educational purposes, not specific advice. It is best to discuss your situation with a qualified tax advisor who is familiar with your situation.
@@erniemays1840 There is usually no mention of self employment tax or 15% anywhere !!!!! But then they can make up 12k and not file taxes. But self employment tax????
Doesn't your child have to have a bank account to make the deposit? And don't they need an ID to have a bank account or other tax information attached to accounts?
Great question @j m and thanks for watching. It's awesome you are looking into this strategy to give your child a leg up for a tax-free future. Without getting too deep here, you can open what are called custodial accounts for any minor child. That's exactly what I did for my children. In addition, a Roth IRA for a minor child is called a custodial Roth IRA. Many custodians will open those as well. They use your information and the child's information. ID is not necessary for the minor in most cases. I hope it helps.
I’m trying to open Roth IRA for my 1 year daughter but she so young to have self employment can I fund from my account? Last year she had some gift money can I used that money?
@ernie mays Thanks for watching and I am glad it was thought provoking. What specifically are you asking? That question all depends upon your tax professional's opinion and what you are doing for yourself and your child. If you can be more specific I can attempt to answer the question. Cheers!
Not a bad move at all. When this video was created in 2021 that wasn't an option. HOWEVER, there are annual limits to Roth contributions, and you must stay within those when "rolling over funds". You can't rollover a large chunk of a 529. It's also limited to I believe $35k total and the account has to be opened for 15 years AND... AND... AND.... so there are a lot of hoops. If a child has earned income to qualify for a Roth IMO take advantage of it, because they may not be able to in the future and tax-free compounding is insanely valuable! _(This is not personal advice, this is for education purposes only)_
My children have had withholdings from their paychecks. They'll file their taxes and likely get a full return. Can we contribute their entire net pay from paychecks plus their tax return amount towards their roth ira? They will be below the limit regardless. Thank you!
Great Question @zachary larson. This is a perfect question to ask your tax preparer who knows your situation. You may contribute up to the limit the full amount of "earned income". Where the funds come from is up to you and your children. It could come from anyone... a friend, an Uncle, you, or them. The government doesn't care where the money comes from, only that contributions don't exceed the limit and are only made on "earned income".
If you have hired a child in an LLC, there should be proper payment made to a bank account in the child's name first. Then that money can be saved into a Roth IRA if you wish. If you are paying your child for work done in the business, that is an expense for the business and thus a write off to the business as an expense. *It's important to discuss all tax strategies with a qualified tax advisor who understands your situation before implementing any tax planning strategy
Wondering what the impact of a Roth IRA is on a student's eligibility for financial aid? Generally, retirement accounts do not count as assets of the student on a FAFSA filing so the Roth IRA will not impact it...until a withdrawal is made. Once a withdrawal is made, it can impact financial aid in the year AFTER the withdrawal. Ideally, make any Roth IRA withdrawals for college, after applying for student aid.
You said something at the 4;25 mark that needs attention. You said that you can't pay your children to do chores, and have it count as earned income. I'm seeing many others on the web that are saying you CAN pay your children for chores and use that earned income to fund a custodial roth for the child. Thanks-
@@donh8223 Not everything on the web is fully accurate and different advisors and CPAs have a different level of comfort with different strategies. I would consult with your tax advisor before making any decisions. Feel free to reach out to me directly if you would like to know more.
How is a chore defined? Perhaps the parents don’t require anything of their child. Could they in theory pay them to do a task? Maybe they have a stay at home parent or a housekeeper. Just asking . Thanks.
Great question. Thanks for asking it @ains. You would not be asked the child's income by the brokerage firm holding the account. It is 100% on you to prove the child's earned income if/when the IRS comes asking. It is not the brokerage firm's responsibility to check if the child is eligible. It is your responsibility. I am so glad you asked that question. Thanks for the conversation. And kudos to you for setting up your daughters for future financial success!
At a 6 minute mark you said “as a parent or a grand parent you can gift money to the grandchild to be but in the Roth IRA”. Could you please elaborate on this. If I understood you correctly that means that, as a father I can gift money to my child as long as my child has an earned income. So, if my son earns a $100 dog walking, does that mean I can gift him another $6400 to put in his Roth IRA just just be cause he earned $100? Thank you very much for educating the community.
Great question. It means, if the child has earned income, say $100 from dog walking. In theory, they could keep 100% of that money and spend it on candy. A parent, grandparent, guardian, or friend could "give" $100 to the Roth IRA. I know a number of parents who "match" their child's earnings with a contribution to the Roth IRA. For instance, the child makes $5000 and is required to save 10% of it into the Roth IRA. ($500). The parent also "Matches" $500, so the child gets a $1k contribution into the Roth IRA. Half from the child's money and half from the parent's money. Of course, you could match whatever amount you like up to the child's earned income or the Roth Limit whichever is less. Hope this helps!
@seetheforestthroughthetrees I have a similar question that touches upon this, my son has begun a job through our restaurant doing grounds upkeep. We plan on starting a roth ira very soon investing 50%of his earnings, but would like to transfer his savings account into his roth IRA. Can we simply apply ALL his savings to his account at once, or will we HAVE TO match the other 50% of his earnings slowly till the balance of the savings account has been completely transferred?
It really doesn't matter how the money gets into the Roth IRA as long as you stay under the maximum contribution limit based on income per year. If someone recently started a job in 2024, you can't put in more than they are earning. Easiest strategy is to wait until the year is finish, figure out how much earnings he had, and then transfer the amount or the contribution limit if earnings exceed it into the Roth IRA.
Great question, and thanks for watching, but I cannot provide personal advice on this channel. It is for educational purposes only. I would recommend you speak with your tax advisor as that answer depends on a number of variables including total amount of income received in the calendar year and eligibility for different government programs. Three years old is pretty young to have earned income. In my opinion, as stated in the video wait until age 7. What work is she doing at age 3?
My Daughter found out she was Expecting the other week and I so want to do this! I’m thinking pictures in my Rental House will give the income! Can I put it in a trust to where they can’t access it unti, they are 69? Not pull any out for anything! Only pull as per the 4% Rule once they are 6”? I want some ru,es!
I have a photography business where I get royalties from stock images... this includes pictures of people, place and things. Can I pay my 1 year old $400 a modeling fee and put that in a ROTH IRA for them? I know child models can get upwards of $250 an hour so $400 is realistic if its over many sessions. Also the $400 is so there is no self employment tax they would need to pay. Thanks
Awesome question @jimmy lopes. I have definitely heard of people doing just that when structured correctly. This is not personal advice, just educational content. I don't provide personal advice here on YT. But, it sounds like you are on the right track. Speak with your tax professional on the best ways to implement your strategy, and document, document, document!
@@seetheforestthroughthetrees thanks, I'll have to speak to my cpa. I think since I get freelance income from photography this would sound reasonable to hire my child for those image instead of paying other models. thanks again
I would think that sounds very reasonable as well with a pay that is in line with industry standards. Thanks for watching. If you haven't yet, since you own your own business, check out my Path Toward Prosperity Ebook for business owners at celestialwm.com/ptpebook-go/
Great question and thanks for watching! Your child MUST have earned income. If they have earned income, you can contribute on their behalf with tax credit money up to the amount of earned income or $6,000 whichever is less. It's a great strategy. For instance, lets say your child earns $3k from his part-time job in 2021. You could tell him if he saves 10% of it into a Roth IRA, you will match him that $300. Or you could invest $3k from monthly tax credits into the Roth on his behalf.
Is it only up to $10,000 that can be withdrawn? Let’s say my child has $50,000 in their Roth IRA... they want to use it to pay for college and books. Can they take the entire $50k? If they withdraw before 59 1/2... does the money have to be replaced?
Great question! First, the owner can remove any principal contributed without tax or penalties. So, that principal can grow for many years and then be removed to use for college, leaving the earnings to compound. Up to $10,000 can be removed without penalty or taxes if under 59.5 to buy, build, or rebuild your first home. In your example, the child could take any of the principal out free and clear. But, you want to be careful about timing and the amount. Penalties and taxes may apply on earnings if the account is not held for at least 5 years. Every situation is different and must be analyzed as such. This is not specific advice.
@@unnepak1 If withdrawn early. A Roth is for retirement. So, if you or your child wait to withdraw the earnings until they are 59 1/2, NONE of the compounded earnings are taxed. That's the beauty. An incredible tax shelter for the earnings without giving up complete access to the money. Thanks for your comments. Many more videos in the pipeline, make sure to subscribe!
There is an exception for distributions used to pay qualified higher education expenses. No 10% penalty but taxes are still owed on the earnings if withdrawn before 59 1/2 when used for education. Cheers!
@@seetheforestthroughthetrees "As long as the account is owned for *_five_* years, the owner can always remove any principal contributed without tax or penalties." There is *NO* five year wait to withdraw Roth contributions.
Make sure to grab my Free Ebook for tips on supercharging your financial life👉🏻celestialwm.com/ptpebook-go/
Thank you this helped me greatly.
Glad it helped!
Do you have the spreadsheet to keep track of work? Or should I just make my own via excel
Check your state laws, in mine though my son was an adult at 18, I could maintain control of his custodial investment account until 21.
Great information. Thanks for sharing!
Glad it was helpful! I wish my parents would have had access to this for me all those years I worked at concession stands, umpired baseball games, worked summer jobs at restaurants washing dishes, cooking white fish in Charlevoix, MI but the ROTH IRA was only established in 1997 after I went to college. Help your kids where you can! Cheers.
@@seetheforestthroughthetrees me too! 😁
Great informational video! My 15-year old grandson had a summer job at a car dealership and will again when he has a school break this fall. I hope to fund a Roth account for him as I also opened and funded Roth accounts for my 2 daughters in 2020. Question: if the Roth accounts ever drop below what ever was contributed due to market down turns, would this impact how much they would have access to? My daughters' accounts were given $12k total for 2020 and 2021, but I saw their accounts this year were less than the $12k. I trust my girls and grandson would not tap into their Roth accounts prior to retirement, but emergencies do occur. Thank you!
That is so awesome to hear @gary demille! Thanks for sharing. You always have access to the amount you contributed without taxes and penalties because it was an after-tax contribution.... as long as you have the proof of contribution (documentation). And.. that documentation can get lost over time, so be mindful. If the account is lower than the contribution, it could all be withdrawn in an emergency. I hope that helps. The power of compounding for a child's Roth IRA is huge.
This was very useful, thank you! Is the earned income taxed? My son has made a couple hundred this year babysitting his cousins. Will he have to file any taxes or does the $600 cap still apply?
Thanks for watching and the comment @marthanna mcGaw. The answer is "it depends". It completely depends upon your son's situation. The standard deduction for 2022 is $12,950 so total income less than that doesn't have income taxes. However, there could potentially be sefl-employment tax. He may or may not need to file a tax return. Numbers change each tax year. This channel is for educational purposes, not specific advice. It is best to discuss your situation with a qualified tax advisor who is familiar with your situation.
Thank you!
@@erniemays1840
There is usually no mention of self employment tax or 15% anywhere !!!!! But then they can make up 12k and not file taxes. But self employment tax????
Would SS payment that my stepson receives qualify as earned income?
Earned income must be "earned". Generally social security income does NOT count as earned income.
Doesn't your child have to have a bank account to make the deposit? And don't they need an ID to have a bank account or other tax information attached to accounts?
Great question @j m and thanks for watching. It's awesome you are looking into this strategy to give your child a leg up for a tax-free future. Without getting too deep here, you can open what are called custodial accounts for any minor child. That's exactly what I did for my children. In addition, a Roth IRA for a minor child is called a custodial Roth IRA. Many custodians will open those as well. They use your information and the child's information. ID is not necessary for the minor in most cases. I hope it helps.
I’m trying to open Roth IRA for my 1 year daughter but she so young to have self employment can I fund from my account? Last year she had some gift money can I used that money?
So no filing taxes for doing this?
@ernie mays Thanks for watching and I am glad it was thought provoking. What specifically are you asking? That question all depends upon your tax professional's opinion and what you are doing for yourself and your child. If you can be more specific I can attempt to answer the question. Cheers!
What about getting a 529 account and then, if they choose to not go to college, rolling it over in to a Roth IRA?
Not a bad move at all. When this video was created in 2021 that wasn't an option. HOWEVER, there are annual limits to Roth contributions, and you must stay within those when "rolling over funds". You can't rollover a large chunk of a 529. It's also limited to I believe $35k total and the account has to be opened for 15 years AND... AND... AND.... so there are a lot of hoops. If a child has earned income to qualify for a Roth IMO take advantage of it, because they may not be able to in the future and tax-free compounding is insanely valuable! _(This is not personal advice, this is for education purposes only)_
My children have had withholdings from their paychecks. They'll file their taxes and likely get a full return. Can we contribute their entire net pay from paychecks plus their tax return amount towards their roth ira? They will be below the limit regardless. Thank you!
Great Question @zachary larson. This is a perfect question to ask your tax preparer who knows your situation. You may contribute up to the limit the full amount of "earned income". Where the funds come from is up to you and your children. It could come from anyone... a friend, an Uncle, you, or them. The government doesn't care where the money comes from, only that contributions don't exceed the limit and are only made on "earned income".
If my child is being paid through my LLC can my LLC deposit that into a Roth IRA and is there a tax break for my LLC?
If you have hired a child in an LLC, there should be proper payment made to a bank account in the child's name first. Then that money can be saved into a Roth IRA if you wish. If you are paying your child for work done in the business, that is an expense for the business and thus a write off to the business as an expense.
*It's important to discuss all tax strategies with a qualified tax advisor who understands your situation before implementing any tax planning strategy
Wondering what the impact of a Roth IRA is on a student's eligibility for financial aid? Generally, retirement accounts do not count as assets of the student on a FAFSA filing so the Roth IRA will not impact it...until a withdrawal is made. Once a withdrawal is made, it can impact financial aid in the year AFTER the withdrawal. Ideally, make any Roth IRA withdrawals for college, after applying for student aid.
You said something at the 4;25 mark that needs attention. You said that you can't pay your children to do chores, and have it count as earned income. I'm seeing many others on the web that are saying you CAN pay your children for chores and use that earned income to fund a custodial roth for the child. Thanks-
@@donh8223 Not everything on the web is fully accurate and different advisors and CPAs have a different level of comfort with different strategies. I would consult with your tax advisor before making any decisions. Feel free to reach out to me directly if you would like to know more.
@@seetheforestthroughthetrees Good deal, thanks for your reply
@@donh8223 Happy to. Thanks for commenting. Many more videos in the pipeline. Make sure you subscribe! Cheers!
How is a chore defined? Perhaps the parents don’t require anything of their child. Could they in theory pay them to do a task? Maybe they have a stay at home parent or a housekeeper. Just asking . Thanks.
I opened 2 up for my daughters and pay 100 dollars a month each I was never asked for child’s income is the account gonna be ok ?
Great question. Thanks for asking it @ains. You would not be asked the child's income by the brokerage firm holding the account. It is 100% on you to prove the child's earned income if/when the IRS comes asking. It is not the brokerage firm's responsibility to check if the child is eligible. It is your responsibility. I am so glad you asked that question. Thanks for the conversation. And kudos to you for setting up your daughters for future financial success!
At a 6 minute mark you said “as a parent or a grand parent you can gift money to the grandchild to be but in the Roth IRA”. Could you please elaborate on this. If I understood you correctly that means that, as a father I can gift money to my child as long as my child has an earned income. So, if my son earns a $100 dog walking, does that mean I can gift him another $6400 to put in his Roth IRA just just be cause he earned $100?
Thank you very much for educating the community.
Great question. It means, if the child has earned income, say $100 from dog walking. In theory, they could keep 100% of that money and spend it on candy. A parent, grandparent, guardian, or friend could "give" $100 to the Roth IRA.
I know a number of parents who "match" their child's earnings with a contribution to the Roth IRA. For instance, the child makes $5000 and is required to save 10% of it into the Roth IRA. ($500). The parent also "Matches" $500, so the child gets a $1k contribution into the Roth IRA. Half from the child's money and half from the parent's money. Of course, you could match whatever amount you like up to the child's earned income or the Roth Limit whichever is less. Hope this helps!
@seetheforestthroughthetrees I have a similar question that touches upon this, my son has begun a job through our restaurant doing grounds upkeep. We plan on starting a roth ira very soon investing 50%of his earnings, but would like to transfer his savings account into his roth IRA. Can we simply apply ALL his savings to his account at once, or will we HAVE TO match the other 50% of his earnings slowly till the balance of the savings account has been completely transferred?
It really doesn't matter how the money gets into the Roth IRA as long as you stay under the maximum contribution limit based on income per year. If someone recently started a job in 2024, you can't put in more than they are earning. Easiest strategy is to wait until the year is finish, figure out how much earnings he had, and then transfer the amount or the contribution limit if earnings exceed it into the Roth IRA.
I placed 6K when I opened my daughter’s custodial Roth IRA, she’s only 3 yo. Do I need to file for tax?
Great question, and thanks for watching, but I cannot provide personal advice on this channel. It is for educational purposes only. I would recommend you speak with your tax advisor as that answer depends on a number of variables including total amount of income received in the calendar year and eligibility for different government programs. Three years old is pretty young to have earned income. In my opinion, as stated in the video wait until age 7. What work is she doing at age 3?
"Strong"
Thanks for watching
My Daughter found out she was Expecting the other week and I so want to do this!
I’m thinking pictures in my Rental House will give the income!
Can I put it in a trust to where they can’t access it unti, they are 69?
Not pull any out for anything!
Only pull as per the 4% Rule once they are 6”?
I want some ru,es!
I have a photography business where I get royalties from stock images... this includes pictures of people, place and things. Can I pay my 1 year old $400 a modeling fee and put that in a ROTH IRA for them? I know child models can get upwards of $250 an hour so $400 is realistic if its over many sessions. Also the $400 is so there is no self employment tax they would need to pay. Thanks
Awesome question @jimmy lopes. I have definitely heard of people doing just that when structured correctly. This is not personal advice, just educational content. I don't provide personal advice here on YT. But, it sounds like you are on the right track. Speak with your tax professional on the best ways to implement your strategy, and document, document, document!
@@seetheforestthroughthetrees thanks, I'll have to speak to my cpa. I think since I get freelance income from photography this would sound reasonable to hire my child for those image instead of paying other models. thanks again
I would think that sounds very reasonable as well with a pay that is in line with industry standards. Thanks for watching. If you haven't yet, since you own your own business, check out my Path Toward Prosperity Ebook for business owners at celestialwm.com/ptpebook-go/
can you use child tax credit to fund the roth IRA for your child?
Great question and thanks for watching! Your child MUST have earned income. If they have earned income, you can contribute on their behalf with tax credit money up to the amount of earned income or $6,000 whichever is less. It's a great strategy. For instance, lets say your child earns $3k from his part-time job in 2021. You could tell him if he saves 10% of it into a Roth IRA, you will match him that $300. Or you could invest $3k from monthly tax credits into the Roth on his behalf.
Amazing💮
Thank you! Cheers!
Yeah but the earned income is the matter of concern
So very Wonderful😍💘
Thanks 😄
Is it only up to $10,000 that can be withdrawn? Let’s say my child has $50,000 in their Roth IRA... they want to use it to pay for college and books. Can they take the entire $50k? If they withdraw before 59 1/2... does the money have to be replaced?
Great question! First, the owner can remove any principal contributed without tax or penalties. So, that principal can grow for many years and then be removed to use for college, leaving the earnings to compound. Up to $10,000 can be removed without penalty or taxes if under 59.5 to buy, build, or rebuild your first home. In your example, the child could take any of the principal out free and clear. But, you want to be careful about timing and the amount. Penalties and taxes may apply on earnings if the account is not held for at least 5 years. Every situation is different and must be analyzed as such. This is not specific advice.
@@seetheforestthroughthetrees thanks. So all compounded earnings, when withdrawn, is subject to tax??
@@unnepak1 If withdrawn early. A Roth is for retirement. So, if you or your child wait to withdraw the earnings until they are 59 1/2, NONE of the compounded earnings are taxed. That's the beauty. An incredible tax shelter for the earnings without giving up complete access to the money. Thanks for your comments. Many more videos in the pipeline, make sure to subscribe!
There is an exception for distributions used to pay qualified higher education expenses. No 10% penalty but taxes are still owed on the earnings if withdrawn before 59 1/2 when used for education. Cheers!
@@seetheforestthroughthetrees "As long as the account is owned for *_five_* years, the owner can always remove any principal contributed without tax or penalties." There is *NO* five year wait to withdraw Roth contributions.
fantastic 👌goals how cute is this
Thank you! 😊