Can I start a retirement plan for my children?
You are allowed to open a retirement account in your child's name, but he or she must have eligible compensation.. According to the IRS, contributions to all of the child's traditional and Roth IRAs cannot be more than $5,500 or the child's taxable compensation for the year,(if compensation compensation was less than this dollar limit). | 09.30.15 @ 20:29
Does your child have earned income from a job* If yes, you can open a retirement account for your child. You can choose between 2 types: Traditional – taxes are paid when the money is withdrawn (at your child's then-current rate). Roth - taxes are paid before you put money into the account, so withdrawals of contributions are tax-free. Money grows tax-free while in the account in either case.
How to choose?
If your child’s income is less than the threshold set by the IRS for filing a tax return, she is likley in a 0% income tax bracket and may not benefit from the up-front tax deduction associated with traditional IRAs. So, in general, a Roth is the choice for minors who have limited income and cannot benefit from up-front tax deduction).
*babysitting & dog-walking count if she received payment – please have a W2, 1099 or keep records of the payment she receives during the year.
Let me know if you have any other questions,
Stacy (WIN, My Dollar Guru in New York) | 09.30.15 @ 21:56