turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
Announcements
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

Bmeehan
Returning Member

Roth for grandson

I have a 2yr old grandson and would like to open a custodial Roth IRA for him. I understand this is permissible as long as he has earned income. Can I commission him to produce a finger painting to generate the earned income?  What documentation will we need to prove the income?  Should we file a tax return for him?

Connect with an expert
x
Do you have an Intuit account?

Do you have an Intuit account?

You'll need to sign in or create an account to connect with an expert.

5 Replies
Anonymous
Not applicable

Roth for grandson

considering his age, i don't think the IRS would buy it.    while I'm not a lawyer, generally a minor does not have contractual capacity.  

 

if the IRS rejects you tax avoidance scheme then you'll have have plenty to worry about besides the penalties for an excess Roth contribution.  

 

 

besides how much do you think you can reasonably pay him for a finger painting.   

 

 

dmertz
Level 15

Roth for grandson

A 529 plan contribution would be a lot more sensible.

Bmeehan
Returning Member

Roth for grandson

As for age, there is no age restriction on opening a IRA. For example, it is perfectly legal for a child to have earned income (e.g. a teen babysitting outside their household) and putting up to the amount of earned income in an IRA. In fact, their parents can let them spend the money, and the parents can fund the IRA.

 

You are correct, a minor cannot sign a contract, that is why the IRA would have to be held in a custodial account For Benefit Of (FBO) the child until the child reaches the age of majority.  This is no different than if a child receives an inheritance.

 

I’m not trying to avoid taxes, but trying to follow the law, and use the tax law to my family’s benefit.  This is no different than anyone else placing earned income in a IRA to save for retirement.

 

The key is the earned income.  Everything I’ve read says sales from hobbies and art is considered earned income and must be reported as such. 

 

I reasonably believe a finger painting would be worth $6,000, the maximum contribution limit for an IRA.  Who is able to tell me otherwise.  And no, I don’t plan to sell it in the future at a loss to offset capital gains. 

Bmeehan
Returning Member

Roth for grandson

Any unused money in a 529 plan is taxed as follows:

  • Earnings taxed as income
  • 10% penalty 

Contributions to a Roth can be used to fund education if needed. 

 

The benefit of the Roth is that it is never taxed, and he could let it compound for 60+ years

TomD8
Level 15

Roth for grandson

Being in possession of a painting that you "reasonably believe" is worth $6000 (or any other amount) does NOT constitute earned income for your child and does NOT qualify your child for a Roth IRA.

Suggest you read the IRS definition of earned income in this reference: https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income

 

 

**Answers are correct to the best of my ability but do not constitute tax or legal advice.
message box icon

Get more help

Ask questions and learn more about your taxes and finances.

Post your Question
Manage cookies