ROTH IRA for my 9yr. old daughter?

[Guest Hybrid93Hatch]

Is it possible for me to open an ROTH IRA for my 9 year old daughter? I am divorced and do not have custody of my daughter. I do have visitation rights and pay child support (on good terms with ex so I can get my daughter whenever I want).

My daughter has a basic savings account that is in my name but for her (my old savings account before I switched banks). I would like to start her ROTH IRA with the funds that are currently in the savings account since it earns pennies each month.

Is a minor allowed to have a ROTH IRA? Will I have to be on the account? Does it matter that she does not live with me? I want to control the account since I will be making the contributions on a bi-weekly basis.

I've been contributing to my 401k (TSP) for the past 4 years. This will be my first investment outside of the 401k and basic savings account.

What institutes should I look into? I have heard a lot about ING. I bank with Bank of America, Suntrust, and First Georgia Community Bank if that matters.

Thanks for any help!!

[JanetM]

Sure you can open a roth for a minor. You might have trouble finding trustee who will take it.

[Bird]

She has to have earned income, no?

[JanetM]

Earned income is required. No word from IRS on the question of what counts. Does money made for doing chores count since parents don't issue W-2?

Draw back is that if you open an account for the child, it belongs to the kid. Any time after the age of 18 they could cash it in. You would have no say in the matter.

[Guest taylorjeff]

I set up Roth IRAs for both my daughters when they were minors. I had to look around for the account holder and ended up with Scottrade.

I believe she will have to have earned income (ie. wages) in order for her to make a contribution. So, I don't think you'll simply be able to move funds from the savings account. You'll probably have to file a 1040 for her too. At one time I employed both of my children in my business doing some office work, so I was able to pay them enough money for the contribution.

Is it possible for me to open an ROTH IRA for my 9 year old daughter? I am divorced and do not have custody of my daughter. I do have visitation rights and pay child support (on good terms with ex so I can get my daughter whenever I want).

My daughter has a basic savings account that is in my name but for her (my old savings account before I switched banks). I would like to start her ROTH IRA with the funds that are currently in the savings account since it earns pennies each month.

Is a minor allowed to have a ROTH IRA? Will I have to be on the account? Does it matter that she does not live with me? I want to control the account since I will be making the contributions on a bi-weekly basis.

I've been contributing to my 401k (TSP) for the past 4 years. This will be my first investment outside of the 401k and basic savings account.

What institutes should I look into? I have heard a lot about ING. I bank with Bank of America, Suntrust, and First Georgia Community Bank if that matters.

Thanks for any help!!

[Guest mjb]

Janet. p55 of of Pub 590 defines comp for a Roth IRA as including compensation, salary, tips and other amounts received for providing personal services. If the parents can issue a w-2 to a 9 yr old for personal services the w-2 amounts can be contributed to an IRA.

[JanetM]

mjb I agree. But the question I get asked is can they count chore money paid but not reported as income as funding for Roth IRA. I know a few folks who have funded accounts for their kids, and they say the babysitting money is funding it. None of these kids will get 1099 for that.

[John G]

1. Absolutely the child must have earned income as the basis for funding the IRA/Roth. You can fund the account (grandparents can too), but your daughter must have the earned income. Dividends, interest, lottery winnings, etc. do not count as earned income. Payment for newspaper routes, babysitting, modeling fees, yard work at the neighbors and any payment related to normal employment count as EI. We have not seen any posts about how much the IRS bothers to check on the $500 to $1000 type claims of earned income. Maybe the accountants can comment on if a tax return is always required. But I would assume that it is harder to document earnings from a 9 year old then a teenager.

2. Family owned businesses employement: Yep, that works. Especially if you issue a W2. My kids helped with filing, shredding, mailing, etc. and I paid them each $2000 a year from our family business, which allowed me to fund their Roths at the max since they also had newspaper routes and summer jobs. I think they were 15 when we started, and no one has ever asked a question about what we did. Today, they each have over 28K in 3 - 5 no load mutual funds. If those accounts grow at 10% a year, they will have about 1.8 million in their mid-60s. They vary in their interest in monitoring their account or making fund choices, but sure like the potential goal!

3. Custodians: Etrade says NO to kids accounts. Schwab says YES. Some custodians are willing to set it up as a custodial account. Others don't want the business. You might need to hunt around.

4. Child's access to money: Yes, this can be a problem. Normally you have no control over money in a child's name once they reach the age of majority (right term?), 18 in most states. Some approaches to that problem: (1) teach your kids to be responsible, get them involved in community service (so they don't just think of themselves), and talk about the responsibility/morality of money, (2) don't tell the child about the account (not sure how legal, but it is a practical solution), and (3) let the kid know about the account and get them to understand it is for the future, use it as a teaching tool about investing. I used #1 and #3 and added they would be cut out of any inheritance if they couldn't handle this token amount... which so far is working with my kids. I am not a big fan of "secrets" like #2. Use anything you start as a teaching tool... learn to fish, rather than hand the child a fish, and you get them off on a good start in life. But understand that the black sheep of the family could go and by a hot car with the cash when they turn 18.

5. If your child does not have earned income... put your plan on hold for a few years. In the mean time, consider open an educational IRA, standard mutual fund or other investment account and begin your child's education about the world of money. A modest mutual fund in your child's name will probably not earn enough in the first few years to trigger any taxation. Alternatively, you could just fund your own accounts (Roth or otherwise) and then use those assets to pay for your daughters college tuition.

6. Don't forget yourself!: You are relying on the 401K? You did not provide a lot of details, but you perhaps you should also maxing out your own Roth.

7. Another option to consider is a 529 college saving plan. Some are good. Some terrible. They vary by state and company. Way too many issues to fully cover this option.

8. There are literally thousands of companies that can handle IRA, Roths, mutual funds, brokerages and other investments. Contact three or more. Ask lots of questions about fees and investment options. You can find them online, in Money or Kiplinger magazines, or your local paper business section.