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Level 2

Question

Roth for grandson

Forum|Forum|6 years ago
August 29, 2019
1 reply
20 views

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?

IRA

A

Anonymous

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.

Level 15

A 529 plan contribution would be a lot more sensible.

Level 2

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