Opening Roth IRA for Child

[Cpayne09]

I've done some research on this, found some amazing articles, and am just looking for someone who actually has some experience in doing this. Assuming the child is of ages 1-5. What battles have you had to fought? Is it an easy thing to do?

I think i'm mainly wondering if I were my kid's "employer" how could I provide a W2 to prove to the IRS he/she is making income?

[ngood2345]

I thought about doing this myself. I thought about a photo shoot that paid them $5000 each year.

Then I had a friend who did this for his kids. When the kids got to be 18 they started taking money out. They are considered adults and have full control over the money. You have no say in it. Even though they had to pay the 10% penalty they didn't care.

This same goes for college saving funds, your kids have full control at 18. Instead of college fund I put the money into my 401 accounts. As it turned out both my kids got through college, debt free. I never had to touch my 401 accounts.

I put my money into 401 ROTH myself. I will get to 59 1/2 before my kids. If they need help I can take money out tax free. The money will be left to them to take out tax free. However, when I'm gone there will be a RMD on the ROTH accounts for my kids, but it will be very small.

[mjedlin66]

After much consideration on this topic, I came to realize that I could significantly help my nieces, nephews, and children pay for college, but I don't want to. Everyone I went to college with who had significant help turned out to be a lazy pain in the ass. Paying for it myself taught me a lot about self-reliance.

That's not to say I won't help at all. As ngood pointed out, they will have full control of their IRA at age 18. I am not sure what the access restrictions on a 529 are other than that they have to be in school. But I would rather plan for them via my own accounts and just not tell them about it. Once a next-generation kin finishes school, I can reward them by paying off a portion of their debt. They don't need to know about it until then.

But to answer your question, I don't have any experience doing this myself. I have read those articles you mention about an IRA for your youth. Technically they have to earn the money. But the articles I remember reading stated that they could earn the money by traditional under-the-table means, such as babysitting, and the IRS wouldn't really care.

I wonder how all the rich people with full time tax advisers set up IRAs for their children?

[pak3chris]

Something to add... What would be the better option and why? A Roth TSP, 529, or an UTMA? I understand that they all offer both benefits and disadvantages. At the end of the day if my kid decides not to go to college for X or Y reason I want that money to be accessible.

[ArrieS]

I plan on doing this for my children. I also plan on not telling them about the accounts. I'll stop contributing when they are 18 or leave the house and not mention they exist at all, not until I know it won't get plundered.

I figured I'd tell them after they are well on their way

[evilanne]

If you are under the income limits, you can also do a Roth IRA in addition to TSP. Over the limits, some do IRA conversions or "backdoor Roth IRA" but that can get complicated. A separate Roth IRA can be used to pay for education expenses and no need to have a loan from TSP, but still an option. If child doesn't go to college, you have that much more for retirement. http://www.finaid.org/savings/retirementplans.phtml

[ArrieS]

I'd like to also mention you can do an IRA for your spouse if they don't work. Which I think is a good opinion in the event you are divorced. That way you can claim she has her own retirement account you funded with your earnings during the marriage and there's no reason to divide up your TSP.

[mjedlin66]

I'd like to also mention you can do an IRA for your spouse if they don't work. Which I think is a good opinion in the event you are divorced. That way you can claim she has her own retirement account you funded with your earnings during the marriage and there's no reason to divide up your TSP.

I mean, I do fund my wife's IRA, but it certainly isn't divorce preparation.

[evilanne]

I don't think Arries argument holds any water and I'm sure any divorce lawyer will be aware of the substantial difference between TSP & IRA. Wondering if Arries is having marital issues

[ArrieS]

I don't think Arries argument holds any water and I'm sure any divorce lawyer will be aware of the substantial difference between TSP & IRA. Wondering if Arries is having marital issues

A valid assumption given the available evidence. However, I'm not married. It's just an idea.