Contributions to Roth IRA by Depdendent Child

[cspfire2024]

Hello Tax Experts,

My daughters (age 18) is working part time in addition to her school.  I am encouraging her to contribute (say even $100) to Roth IRA.  Here are my questions and would really appreciate if you could please help:

1. Can I claim her as my dependent while filing my taxes while she files her taxes as individual filer without claiming any deductions (she would say - some one else is claiming me as dependent)?

2.  Can she contribute part of his earnings to Roth IRA.

Thank you.

[macuser_22 · Accepted solution]

Yes to both as long as the contribution comes from taxable compensation (money she worked for) and is less than the contribution limit of $6,000, for the year.   Being a dependent is irreverent.

[cspfire2024]

Thank you so much for the response and clarification.  Appreciate it!.

[macuser_22]

Note that if the income is self-employed income (as apposed to W-2 income) and is over $400 then  she must file her own tax return and pay the SE tax (Social Security and medicare) that is 16.3% of self-employed earnings, that will reduce the amount if net income that can be contributed to an IRA by the deducible part of the SE tax which is half the amount of the SE tax.

[cspfire2024]

Thank you for the additional clarification. Fortunately, she is on W2. 

[cspfire2024]

Hello,

I neglected or failed to include one important piece of information/question.  Whether or not my daughter's eligibility to contribute to Roth IRA dependent on the fact whether or not I am eligible. Say, if the MAGI is > than allowed.  Please let me know when you get a chance.

[macuser_22]

Your tax return and income has nothing to do with your daughter.      Only *her* income matters.   It would be her IRA owned by her (although if she is a minor it can be a custodial account with you as custodian but it is still her IRA) and she reports her income on her own tax return, not yours.

[macuser_22 · Accepted solution]

In addition a Roth IRA contribution is not reported on a tax return but she should enter it anyway because it is possible that she might qualify for some savers credit depending on the amount of her in come.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

A Roth IRA contribution does not actually go on a tax return, but you should enter it anyway to:

1) Tell you if your income qualifies you for a contribution and warn you if it does not.
2) Check if your income exceeds the limit to contribute to a Roth.
3) Track your contribution year-to-year if you use TurboTax every year.
4) Add the Retirement Savers Credit if you qualify.

[cspfire2024]

Thank you for your help!