Monday, May 12, 2008

Roth for a child

You must have taxable income to fund a Roth IRA. There is no age requirement. What do you do if you want a child who doesn't make any W-2 income to be able to fund a Roth? The Journal provided this answer:

The child can fund the account with his or her dollars, or -- more likely -- an adult would "gift" the money.

[...]

there is a way to stay legal: Declare the money as self-employment income and file a tax return, suggests Ed Slott, an IRA consultant in Rockville Centre, N.Y. In doing so, you could end up paying self-employment taxes.

But the long-term gains from opening a Roth IRA as a youth are "so powerful," Mr. Slott says, that "it's worth paying the tax to get the Roth."

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