Can I make a Roth for my daughter?
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Can I make a Roth for my daughter?
Hi everyone.
My daughter is G-d willing off to college soon. She has a job at a local shop. She is planning on working at my practice for a bit over the summer to make some money as my employee. Obviously money is fungible (a). Obviously (I think to the people here) you can only fund a Roth with earned income, not gifts (b). Therefore, if between her shop job and her job with me, if she earns a total of 6K this year (through wages), there is no reason I can't just open a Roth and fund it for 6K, correct? Meaning - I think anyone can fund a Roth for up to the maximum allowed, but only as much as earned in wages, correct? Meaning - if she earns 2K this year, she could potentially fund as much as 2K for a Roth, but it doesn't have to be from the dollars that went through her W2, money being fungible, correct?
It's late for me and I'm not totally coherent I know.
My daughter is G-d willing off to college soon. She has a job at a local shop. She is planning on working at my practice for a bit over the summer to make some money as my employee. Obviously money is fungible (a). Obviously (I think to the people here) you can only fund a Roth with earned income, not gifts (b). Therefore, if between her shop job and her job with me, if she earns a total of 6K this year (through wages), there is no reason I can't just open a Roth and fund it for 6K, correct? Meaning - I think anyone can fund a Roth for up to the maximum allowed, but only as much as earned in wages, correct? Meaning - if she earns 2K this year, she could potentially fund as much as 2K for a Roth, but it doesn't have to be from the dollars that went through her W2, money being fungible, correct?
It's late for me and I'm not totally coherent I know.
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Re: Can I make a Roth for my daughter?
I did this with my kids from their first teenage job until their early 20's. I gave them the full amount of any W2 earnings up to the contribution limit for their Roth. At first they treated this as the tiresome prattling of an old guy, but it worked, and they are attentive to this ritual on their own.
- TomatoTomahto
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Re: Can I make a Roth for my daughter?
Ditto. I usually refer to it as a bribe, but in polite company I call it matchingdesiderium wrote: ↑Thu Apr 15, 2021 5:11 am I did this with my kids from their first teenage job until their early 20's. I gave them the full amount of any W2 earnings up to the contribution limit for their Roth. At first they treated this as the tiresome prattling of an old guy, but it worked, and they are attentive to this ritual on their own.
It worked.
I get the FI part but not the RE part of FIRE.
Re: Can I make a Roth for my daughter?
Yes, you can fund your child’s Roth with your money and she can keep her earnings.
And yes, you can’t contribute more than the gross on her W-2(s).
And yes, you can’t contribute more than the gross on her W-2(s).
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Can I make a Roth for my daughter?
Agreed. These are the answers to your questions.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
Re: Can I make a Roth for my daughter?
Yes, I do this for my wife. I also call it "matching"
Re: Can I make a Roth for my daughter?
If she's an adult, she'll have to open the account in her name. You can't open the account using her information. If she's still a minor, you have to open a special custodial Roth IRA.Shalom Aleichem wrote: ↑Thu Apr 15, 2021 1:53 am there is no reason I can't just open a Roth and fund it for 6K, correct?
Harry Sit has left the forums.
Re: Can I make a Roth for my daughter?
+1, once the account is open you can deposit your money directly into it using EFT, wire, or old fashioned check. Max contribution for 2021 is $6,000 or up to her W2 income, whichever is LESS. Don’t over contribute. Have her fully invest in VTI or VTSAX.tfb wrote: ↑Thu Apr 15, 2021 12:11 pmIf she's an adult, she'll have to open the account in her name. You can't open the account using her information. If she's still a minor, you have to open a special custodial Roth IRA.Shalom Aleichem wrote: ↑Thu Apr 15, 2021 1:53 am there is no reason I can't just open a Roth and fund it for 6K, correct?
If she had W2 earnings in 2020, you have until 17 May 2021 to make a contribution for 2020.
This worked well with our kids. It got them used to watching an investment grow while keeping their hands off it.
Cheers
“Doing well with money has little to do with how smart you are and a lot to do with how you behave.” - Morgan Housel
- AllMostThere
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Re: Can I make a Roth for my daughter?
IMHO, there is no better financial way to kickstart children into adulthood. While they may not appreciate in younger years, they will learn to review and take control of the Roth IRA as they mature. This is what I have done. With their limited earnings, I funded Roth IRa for DS (High School 15 year old) and DD (College Freshman). For DS I contribute directly via personal check, but for DD I transfer funds into her checking account which she then transfers into her Roth IRA. She then makes the investment herself into ITOT. No better way to establish the learning cycle and life long legacy.
It is not about how much you make; it is about how much you keep and how well you invest it. - Author Unknown |
Dream as if you’ll live forever. Live as if you’ll die today. - Author James Dean
Re: Can I make a Roth for my daughter?
Just make sure that her work for you is legit - real work at a reasonable wage.Shalom Aleichem wrote: ↑Thu Apr 15, 2021 1:53 am Therefore, if between her shop job and her job with me, if she earns a total of 6K this year (through wages), there is no reason I can't just open a Roth and fund it for 6K, correct?
Re: Can I make a Roth for my daughter?
Doesn't matter where the money comes from. It's a gift to the daughter and she can fund her IRA up to the limit or amount of her earnings.
Re: Can I make a Roth for my daughter?
Right. I’ve done this multiple years (funding Vanguard Roth’s) and it is a non-issue. There was never even a request to provide proof of income.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Can I make a Roth for my daughter?
Makes sense. But you’d better be paying taxes on those tips if you want to count them.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Can I make a Roth for my daughter?
A couple of points;
1) I am not sure of the details of the current rules but having the money in her name could reduce any college financial aid that the might qualify for.
2) It might seem obvious but make sure that she knows about and understands the account. People have posted about situations where a parent opened an account in their name years before that they did not know about and that can cause all sorts of problems. Even if she signs a piece of paper you put in front of her she really needs to understand what is going on with the account.
3) If she eventually has a job with the college when she goes off to college you need to check to make sure that actually qualifies for the Roth contribution. The problem is that some college "jobs" may actually be some sort of stipend or grant that may not count as wages.
4) Unless you are really well off and could retire today then you may want to consider if it might be too soon to be transfering money to your kid. The problem is that you could be laid off or disabled tomorrow and there could be a bear market and your finances could turn out a lot worse than you are expecting. By far one of the best financial things that you can do for a kid is to make sure that they do not need to support you someday. I know people that have had to do that and it can be hard. You could put that $6,000 into a taxable in your name and she could inherit it some day and under the current tax laws she would get it at a stepped up cost basis. That is almost as good as money in a Roth.
1) I am not sure of the details of the current rules but having the money in her name could reduce any college financial aid that the might qualify for.
2) It might seem obvious but make sure that she knows about and understands the account. People have posted about situations where a parent opened an account in their name years before that they did not know about and that can cause all sorts of problems. Even if she signs a piece of paper you put in front of her she really needs to understand what is going on with the account.
3) If she eventually has a job with the college when she goes off to college you need to check to make sure that actually qualifies for the Roth contribution. The problem is that some college "jobs" may actually be some sort of stipend or grant that may not count as wages.
4) Unless you are really well off and could retire today then you may want to consider if it might be too soon to be transfering money to your kid. The problem is that you could be laid off or disabled tomorrow and there could be a bear market and your finances could turn out a lot worse than you are expecting. By far one of the best financial things that you can do for a kid is to make sure that they do not need to support you someday. I know people that have had to do that and it can be hard. You could put that $6,000 into a taxable in your name and she could inherit it some day and under the current tax laws she would get it at a stepped up cost basis. That is almost as good as money in a Roth.
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Re: Can I make a Roth for my daughter?
Depending on the type of aid, "work-study" jobs often will not count as earned income. So, if that were the case, she can't use those earnings to make an IRA contribution, but she is not taxed on the money either.Watty wrote: ↑Fri Apr 16, 2021 10:25 am 3) If she eventually has a job with the college when she goes off to college you need to check to make sure that actually qualifies for the Roth contribution. The problem is that some college "jobs" may actually be some sort of stipend or grant that may not count as wages.
Put a portion in VTI/VTSAX, but if she has interest, let her select some other funds or individual stocks she might like.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
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Re: Can I make a Roth for my daughter?
I was thinking 1/4 BTC, 1/4 Ethereum, 1/4 Gamestop, and 1/4 Tesla. Is that too conservative? No margins or futures there.neverpanic wrote: ↑Fri Apr 16, 2021 11:50 amDepending on the type of aid, "work-study" jobs often will not count as earned income. So, if that were the case, she can't use those earnings to make an IRA contribution, but she is not taxed on the money either.Watty wrote: ↑Fri Apr 16, 2021 10:25 am 3) If she eventually has a job with the college when she goes off to college you need to check to make sure that actually qualifies for the Roth contribution. The problem is that some college "jobs" may actually be some sort of stipend or grant that may not count as wages.
Put a portion in VTI/VTSAX, but if she has interest, let her select some other funds or individual stocks she might like.
Re: Can I make a Roth for my daughter?
Are you serious? Do you want to teach her investing or gambling?Shalom Aleichem wrote: ↑Fri Apr 16, 2021 3:24 pmI was thinking 1/4 BTC, 1/4 Ethereum, 1/4 Gamestop, and 1/4 Tesla. Is that too conservative? No margins or futures there.neverpanic wrote: ↑Fri Apr 16, 2021 11:50 amDepending on the type of aid, "work-study" jobs often will not count as earned income. So, if that were the case, she can't use those earnings to make an IRA contribution, but she is not taxed on the money either.Watty wrote: ↑Fri Apr 16, 2021 10:25 am 3) If she eventually has a job with the college when she goes off to college you need to check to make sure that actually qualifies for the Roth contribution. The problem is that some college "jobs" may actually be some sort of stipend or grant that may not count as wages.
Put a portion in VTI/VTSAX, but if she has interest, let her select some other funds or individual stocks she might like.
VTI 48%, VXUS 12%, BND 40%
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Re: Can I make a Roth for my daughter?
Haha! Of course not! I haven't funded it yet. 90% of my portfolio is pretty traditional. About 90% VTSAX/VOO and similar, and 10% bond fund. The other 10% is in Hedgefundie. I am debating - as she will not need the money for a long time hopefully - either to do a full Hedgefundie play or VTSAX/QQQ split, or some combination of the two.gwe67 wrote: ↑Fri Apr 16, 2021 3:41 pmAre you serious? Do you want to teach her investing or gambling?Shalom Aleichem wrote: ↑Fri Apr 16, 2021 3:24 pmI was thinking 1/4 BTC, 1/4 Ethereum, 1/4 Gamestop, and 1/4 Tesla. Is that too conservative? No margins or futures there.neverpanic wrote: ↑Fri Apr 16, 2021 11:50 amDepending on the type of aid, "work-study" jobs often will not count as earned income. So, if that were the case, she can't use those earnings to make an IRA contribution, but she is not taxed on the money either.Watty wrote: ↑Fri Apr 16, 2021 10:25 am 3) If she eventually has a job with the college when she goes off to college you need to check to make sure that actually qualifies for the Roth contribution. The problem is that some college "jobs" may actually be some sort of stipend or grant that may not count as wages.
Put a portion in VTI/VTSAX, but if she has interest, let her select some other funds or individual stocks she might like.
I feel foolish but I bought a tiny bit of BTC a couple weeks ago. Foolish because it's up 20% or more in a couple of weeks, and I think if I really believed in it (I don't believe enough) either do it or don't do it. But putting a couple bucks into it is kind of silly. It does however keep me looking at the price nearly every day!
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Re: Can I make a Roth for my daughter?
d.r.a., not dr.a. | I'm a novice investor; you are forewarned.
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Re: Can I make a Roth for my daughter?
I'm doing this for several nieces.
Two additional suggestions: 1) Give her a copy of Mike Piper's Investing Made Simple, and 2) Make a specific suggestion of how she should invest that money, such as 90% Fidelity Total Market Index Fund (FSKAX) and 10% Fidelity U.S. Bond Index Fund (FXNAX). Or whatever. Otherwise initial investing can be too overwhelming for a first time investor.
Two additional suggestions: 1) Give her a copy of Mike Piper's Investing Made Simple, and 2) Make a specific suggestion of how she should invest that money, such as 90% Fidelity Total Market Index Fund (FSKAX) and 10% Fidelity U.S. Bond Index Fund (FXNAX). Or whatever. Otherwise initial investing can be too overwhelming for a first time investor.
The key to success - Save early, save often, invest well.
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Re: Can I make a Roth for my daughter?
Assets in qualified retirement accounts (this includes Roth IRAs) held by either the student or parents will be disregarded when college financial aid is calculated.
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Re: Can I make a Roth for my daughter?
So if she earns $6,000 gross... and pays $1,000 in state, federal, & fica taxes... and she nets $5,000 after taxes are paid... you can still have the full $6,000 put into a Roth account?
Re: Can I make a Roth for my daughter?
Yes... the limit is $6,000 or taxable compensation, whichever is less.brian91480 wrote: ↑Fri Apr 16, 2021 11:02 pmSo if she earns $6,000 gross... and pays $1,000 in state, federal, & fica taxes... and she nets $5,000 after taxes are paid... you can still have the full $6,000 put into a Roth account?
Re: Can I make a Roth for my daughter?
um, of course it doesn't matter where the money comes from (??), but doing it in the manner described directly translates backwards to someone else making the contribution for her & leaves a clear paper trail of such.
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Re: Can I make a Roth for my daughter?
Is that a problem?F150HD wrote: ↑Sat Apr 17, 2021 9:43 pmum, of course it doesn't matter where the money comes from (??), but doing it in the manner described directly translates backwards to someone else making the contribution for her & leaves a clear paper trail of such.
Re: Can I make a Roth for my daughter?
Right. What is your concern about that?F150HD wrote: ↑Sat Apr 17, 2021 9:43 pmum, of course it doesn't matter where the money comes from (??), but doing it in the manner described directly translates backwards to someone else making the contribution for her & leaves a clear paper trail of such.
- TomatoTomahto
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Re: Can I make a Roth for my daughter?
I’ve never let it concern me, but the word “individual” is all over the code and even the title. I can’t imagine the IRS being bothered by it. But, imagine divorced and uncommunicative parents each making the max contribution for a child in the same year; I imagine the IRS would rule that neither was legit rather than playing King Solomon.oldfatguy wrote: ↑Sun Apr 18, 2021 5:35 amRight. What is your concern about that?F150HD wrote: ↑Sat Apr 17, 2021 9:43 pmum, of course it doesn't matter where the money comes from (??), but doing it in the manner described directly translates backwards to someone else making the contribution for her & leaves a clear paper trail of such.
I get the FI part but not the RE part of FIRE.
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Re: Can I make a Roth for my daughter?
I think it's more likely that whoever made the contribution first would "win". There would be nothing wrong with the first contribution so the IRS would have no grounds to disallow it.TomatoTomahto wrote: ↑Sun Apr 18, 2021 5:48 am I’ve never let it concern me, but the word “individual” is all over the code and even the title. I can’t imagine the IRS being bothered by it. But, imagine divorced and uncommunicative parents each making the max contribution for a child in the same year; I imagine the IRS would rule that neither was legit rather than playing King Solomon.
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Re: Can I make a Roth for my daughter?
That is the correct assumption.TropikThunder wrote: ↑Sun Apr 18, 2021 6:08 amI think it's more likely that whoever made the contribution first would "win". There would be nothing wrong with the first contribution so the IRS would have no grounds to disallow it.TomatoTomahto wrote: ↑Sun Apr 18, 2021 5:48 am I’ve never let it concern me, but the word “individual” is all over the code and even the title. I can’t imagine the IRS being bothered by it. But, imagine divorced and uncommunicative parents each making the max contribution for a child in the same year; I imagine the IRS would rule that neither was legit rather than playing King Solomon.
The excess contribution - not the source thereof - is the concern. The contribution limit is set by law. If the taxpayer has sufficient income to qualify for a maximum IRA contribution, the origin of the digital dollars is inconsequential. If there is an excess contribution, again, the source doesn't matter. The taxpayer is responsible to reconcile the overage, which may or may not involve paying a penalty.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.