Roth IRA for my young children

[llckll]

Hello,

I was doing some research on the legality of opening a Roth IRA for my children and wanted to get your opinion.

I have two boys, currently 27 months and 6 months. I want to open a Roth IRA for each of them and contribute $50.00/month for both of them until they are 21. I understand that they need to have at least the same amount of earned income to qualify. So I plan on paying them $50/month to use their pictures on my blog which generates income through Google ads.

Technically, by me paying them, is that enough proof of earned income for me to open them a Roth IRA? How can I document that I am paying them $50/month? But at the same time, that's way less then the amount for them to have to file income taxes. So then can I still open a ROTH when they're earning $600/year and not filing taxes?

Thanks in advance.

[autoxer]

If your child is your employee, then you can issue them a W-2. Or your child could declare it as self employment income and then pay self employment taxes on it. I'm not sure the IRS will be convinced that your toddler and infant have earned income. Why not just put the money into your own Roth IRA and declare them as the beneficiary?

[disneysteve]

Why not just put the money into your own Roth IRA and declare them as the beneficiary?

You could also put it into their education savings - 529 or Coverdell. If you specifically want it to be for retirement, you could open a non-retirement account at Vanguard or Fidelity and start a mutual fund for them. It wouldn't have the tax shelter of a Roth but a good index fund would generate very little taxable income.

[finleyjr]

I agree with the other 2 responses. Unless you have your own business it will be quite difficult to setup the W-2 forms and more of a hastle then you will expect.

In my opinion, the best thing to do is put it into a CSA (college savings account) or just put it into a mutual trust fund or similar.

[feh]

Sounds very shady to me.

Just put it in a 529 for them. Don't be a tax cheat.

[moneybags]

1. You would have to issue them a 1099 for the payments, file a tax return with a schedule C, and they would have to pay self employment insurance.

2. $50 a month for print work is above the industry standard, unless you are taking new pictures every month.

3. For this amount of money, it's not worth the hassle or risk. I"d go with a 529.