Can I open an IRA for my child ( she is 6, off course she does not earn anything ) ?
If she has to earn and then only I can open an IRA in her name, then can I give a gift to her as an IRA money and open an IRA for her ?
In both the case above am I allowed to get tax deductions if I file joint return ? Please note that I will be claiming tax deductions on my wife's IRA as well.
2006-12-17 16:06:18 · 5 answers · asked by Jignesh S 2 in Business & Finance ➔ Taxes ➔ United States
No, your child would have to have earned income. If you had a business and paid her to have her picture taken and used in an advertisement you could pay her and she would then have earned income and would be allowed to open a IRA for a minor with a custodian for that account.
A gift is not earned income.
You would not be allowed in any case to get a tax deduction for the child's IRA, only for you and your wife's traditional IRAs as joint filers.
2006-12-18 06:09:34 · answer #1 · answered by T D 2 · 1⤊ 0⤋
No, but don't let that stop you. They have to be 18, and you want to open a Roth IRA (which has better rules than a normal IRA). So invest in whatever you were planing on doing with a normal investment sasly you will be taxed on the income, but as you will see, if you play your cards right, the tax money would almost be a tiny fraction.
Let's say it's $200 a year. Nothing right? Wrong. Watch it grow!
Sharebuilders is $4 a weekly trade which means you will be putting in $196 a year for your child.
So you put that money in SPY (tracks the SP500, which has a historical average of 12.5%). That throws it to $6291.39 when she is 18. Let's say you taught her well and from working when she is 16 and put in $2,000 for an extra $10476. Right there she has $16,767. The principal is $8352 so you have already doubled the money. Now at her age, let's say she can put in $6,000 a year into a Roth IRA. So for the next 6 years she is at a university (few people graduate in a 4 year university in 4 years anymore). Note I've been not adding the taxes or the sell fees. So she sinks in the first $6000 three year (because it's adding interest and top it off with $2,000 . So at 24 she keeps chipping in $2,000 and you $196 (with the $4 still paying the buy fee) till she is 65 with a little more than $4.3 million in tax free money or wait till she is 70 with $7.8 million in tax free money (Roth income is tax free). You spent $11,800 and she put in $88,000 for a total of $99,800 when she becomes 65. Obviously different factors can work. There could be market crashes and you also might be giving her more money than I'm thinking of (but $200 a year can cover almost every family out there).
2006-12-18 02:08:25 · answer #2 · answered by gregory_dittman 7 · 0⤊ 2⤋
Any form of IRA contribution is based on a person having earned income. Your six year old can't have earned income, that would against child labor laws. Gifts never count as earned income. Sorry, the answer is no.
2006-12-18 05:45:52 · answer #3 · answered by waggy_33 6 · 1⤊ 1⤋
No to all of the above for your child. A gift would not be earned income.
2006-12-18 00:08:24 · answer #4 · answered by Judy 7 · 0⤊ 0⤋
I don't think so since you would be the adult signer ,But I may be wrong ask a lawyer .
2006-12-18 00:10:31 · answer #5 · answered by Elaine814 5 · 0⤊ 2⤋