I want to open a roth ira for my child...

[eugene1]

the rules say that IRA contributions cannot exceed a minor's earnings, e.g., if a minor earns $1,000, then only $1,000 can be contributed to the account. There's an annual maximum contribution of $5,500 per child.   My child doesn't work, but gets allowance.  So say I contribute 1k per year, do i need to somehow report the 1k in allowance or tips on my tax return?   

[DoninGA · Accepted solution]

See this IRS website https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-li...

For 2015, 2016, and 2017, your total contributions to all of your  traditional  and  Roth IRAs  cannot be more than:

• $5,500 ($6,500 if you’re age 50 or older), or
• your taxable compensation for the year, if your compensation was less than this dollar limit.

An allowence is not taxable compensation.  If the child does not have taxable compensation then they cannot contribute to an IRA.

See this IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)  - https://www.irs.gov/publications/p590a/ch01.html#en_US_2016_publink1000230355

What Is Compensation?

Generally, compensation is what you earn from working. For a summary of what compensation does and does not include, see  Table 1-1 . Compensation includes all of the items discussed next (even if you have more than one type).

Wages, salaries, etc.   Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2.

Commissions.   An amount you receive that is a percentage of profits or sales price is compensation.

Self-employment income.   If you are self-employed (a sole proprietor or a partner), compensation is the net earnings from your trade or business (provided your personal services are a material income-producing factor) reduced by the total of:

• The deduction for contributions made on your behalf to retirement plans, and

• The deduction allowed for the deductible part of your self-employment taxes.

  Compensation includes earnings from self-employment even if they are not subject to self-employment tax because of your religious beliefs

[Carl]

You need to visit an estate planner. In some states it's perfectly possible to set up a trust for the child which you can start contributing to immediately. Then when the child reaches working age (14 in most state) and does have an actual job that pays income the IRS will want to know about (a W-2 or 1099-MISC job), then you can have the trust set up so that $5500 a year, or his total earnings for the year (whichever is less) transfers from the trust to a ROTH IRA in the name of the child.