Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Re: Kids & IRAs.
Old 04-10-2005, 08:08 PM   #21
Thinks s/he gets paid by the post
retire@40's Avatar
 
Join Date: Feb 2004
Posts: 2,670
Re: Kids & IRAs.

Quote:
...still, doesn't the child need to pay a regular SS/Medicare/FICA withholding, and you, the employer, pay the same on the employee's behalf, meaning that *together, the two halves would equal the SET in dollar amount?
No. Not if the child is working for his parent's sole proprietorship. This is not a revalation. It's been known for decades.
__________________

__________________
No man is free who is not master of himself. --- Epictetus
Enjoy Yourself (It's Later Than You Think). --- Guy Lombardo
retire@40 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Kids & IRAs.
Old 04-11-2005, 04:28 AM   #22
Thinks s/he gets paid by the post
 
Join Date: Dec 2002
Posts: 3,875
Re: Kids & IRAs.

I employed my kids in various businesses I ran
(ex wife too. She did a good job even though she
was sleeping with the boss ). It was strictly to give
them income, no other purpose. I am kind of envious of friends who have kids who eventually
take over their business. I think that's neat!

JG
__________________

__________________
MRGALT2U is offline   Reply With Quote
Re: Kids & IRAs.
Old 04-14-2005, 06:35 PM   #23
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,318
Re: Kids & IRAs.

I went over all this with my accountant friend and think I have it understood now -- wrote it all out to be clear below. He made a point of saying that doing chores at the rental property could work, but has its own separate rules which I don't understand yet. For a family with mom and/or dad self-employed, here's how it works:


First, to fund a Roth IRA, the child must earn income. It will work best if you have your own profitable sole proprietorship, and can verifiably employ your child doing work for the company. Perhaps your child does filing, runs products to customers, cleans the office, does clerical work and mailings.

To maximize the benefit, aim to have the child earn, from you or other sources, at least $4,000 a year. If you are an S-Corporation or LLC, your child will need to pay regular social security and unemployment taxes, but if you are a sole proprietorship, these are waived for children working in the family company.

The child's low earnings will also be shielded from income tax, due to their standard deduction and the nature of the tax tables. These earnings, essentially all after-tax earned income, can then be used for their annual contribution to a Roth IRA.

Hope this helps.
__________________
ER for 10 years; living off 4.3% of savings (and a few book royalties ;-)
ESRBob is offline   Reply With Quote
Re: Kids & IRAs.
Old 04-15-2005, 08:29 PM   #24
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: Kids & IRAs.

Thanks, Bob, it does help. I need to go over the details with my brother-in-law the CPA when he visits next month. For some reason he's always reluctant to discuss these tax-avoidance schemes via e-mail!

I understand the pros & cons of S, C, & LLC but we've never bothered. If we lost our "dream tenants" I might make the liability leap but our umbrella-liability insurer doesn't require it. So I've never filled out a Schedule C (yet) and all our numbers go into Schedule E. I'm still fuzzy on the details of issuing a W-2 or a 1099-MISC and avoiding audit triggers...
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
The People's Democratic Republic of Hawaii
Old 10-19-2005, 03:20 PM   #25
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
The People's Democratic Republic of Hawaii

I've learned a lot in the last six months.

To recap the concept, the idea is to pay our 13-year-old kid up to $4000/year to fund a Roth IRA. At $8/hour that works out to 500 hours or about 10 hours/week, which complies with child labor laws. That work goes into our rental property (yardwork, painting, & maintenance), to more of the same at home, and for developing websites.

First comes the federal paperwork. IRS Pub 15 (Circular E) says "Payments for the services of a child under age 18 who works for her parent in a trade or business are not subject to social security or Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. If these services are for work other than in a trade or business, such as domestic work in the parentís private home, they are not subject to social security and Medicare taxes until the child reaches age 21. However, see covered services of a child or spouse later. Payments for the services of a child under age 21 who works for his or her parent whether or not in a trade or business are not subject to federal unemployment (FUTA) tax. Although not subject to FUTA tax, the wages of a child may be subject to income tax withholding." Good-- no tax for SS, Medicare, or FUTA.

Withholding is a different issue. Pub 505 says that a kid with $4000 earned income and more than $250 unearned income is subject to withholding. Crunching through W-4 allowances and Pub 15 to the withholding tables shows that the amount to be withheld is... $0. Good.

The only federal paperwork appears to be a $4000 W-2 at the end of the year.

Second comes the state paperwork. Hawaii is a completely different matter from the IRS rules. Tax-wise there's no real distinction between employing your kid and employing a non-family grownup. Asking the state tax people about employing my kid got me a lecture on child labor laws and a transfer to the labor people. After the labor people reassured me that the 10 hours/week is no problem, I finally got back to the tax people to learn that (1) I'd have to change our business license to include employer's withholding and (2) I'd have to file a state version of the W-4 & payment vouchers. Crunching through the Hawaii Employer's Manual and Form HW-4 showed that I'd be withholding $58.72 for the kid's $4000 income. When I asked about unemployment & workmen's comp I got sent back to the "labor" people. Luckily Hawaii doesn't make family employees pay unemployment tax, and kids aren't eligible for workmen's comp until they turn 18.

So that's a state form BB-1X and HW-4 plus a withholding payment voucher. The state earned income report is part of the federal W-2. No electronic filing required.

The actual taxes due are not what I expected. Assuming the kid's UTMA has about $500 of dividend income this year gives an AGI of $4500. Federal tax works out to 0 (the standard deduction is $5000) and state tax is a whopping $60 (only a $1500 deduction). I guess it should be reassuring to see that the state withholding and state tax work out so closely, but Hawaii taxes sure kick in a lot faster than the feds despite Hawaii's claim to lower brackets.

The original point of this exercise was to fund a Roth IRA! I'd prefer to consolidate our accounts at Fidelity (where we already have most of the retirement portfolio) but Fidelity doesn't provide IRA custodial services for minors. Vanguard will do that but of course we'll be subject to a low-balance fee and their customer-service reputation fills me with foreboding. T. Rowe Price will also take care of minor's Roth IRAs but their expenses are much higher than Fidelity or Vanguard. Admittedly we're talking up to $40/year for up to a 1% ER on a $4000 IRA, so nuisance fees might be a much bigger impact than ERs. Of course once the kid turns 18 the custodial duties will be transferred to Fidelity.

I'm beginning to realize why every parent in America doesn't rush out to fund their kid's Roth IRA. I think we've tap-danced through the minefield of justifying earned income (not household chores) and I think the kid is old enough for us to argue that we're getting actual labor in exchange for the earned income. The state tax, perhaps an extra 80 or 90 bp of ERs above Vanguard & Fidelity, and any annual IRA maintenance fees will cost $70-$100/year (for another five years) to permanently shield $4000/year ($5000 starting 2008) from taxes.

One trick to avoid some fees would be to open the Roth IRA next January, fund it with a $4000 contribution for 2005, and then send along a second $4000 for the 2006 contribution. That gives me plenty of time to compare T. Rowe Price's expenses against Vanguard's potential hassle factor and decide if that's worth the savings.

The paperwork isn't much fun, but it's better than reactor plant manuals and I can certainly make the time for it. For the next 47 years of compounding, the expenses are also worth the effort. A Roth IRA has the advantage of shielding money that can be withdrawn for college or a house down payment without the tax implications or other restrictions of UTMAs & 529s. And this whole recap will be highly amusing to my BIL-the-CPA.

Your state's tax laws may vary. I sure hope they're less of a hassle than Hawaii.

Gosh, since I have a plan for the kid's Roth IRA, now I can get started on this year's parental Roth IRA conversions...
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Kids & IRAs.
Old 10-19-2005, 05:11 PM   #26
Dryer sheet aficionado
 
Join Date: Oct 2005
Posts: 31
Re: Kids & IRAs.

JMO, but IRA fees can be mostly avoided by going to Scottrade. No IRA fees, $500 min to open child's IRA, 100's of No-Transaction Fee-No-Load Fund Familes. After seeing how much nicer the office people were in setting up my granddaughter's IRA, my daughter moved her accounts there also. Now her husband is planning to move his too. Paying IRA
fees is not necessary.
__________________
pagar is offline   Reply With Quote
Re: Kids & IRAs.
Old 10-19-2005, 05:57 PM   #27
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: Kids & IRAs.

Quote:
Originally Posted by pagar
JMO, but IRA fees can be mostly avoided by going to Scottrade.
Well, that's good news. I'll just buy a cheap ETF.

Anyone have customer-service & fee-charging opinions about Scottrade? Weren't they just bought out & raising fees, or am I mixing them up with E*trade & the other xxx-Trades?
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Kids & IRAs.
Old 10-19-2005, 06:26 PM   #28
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: Kids & IRAs.

Excellent post, Nords. You're a mod. Maybe you can start a "ER Pearls" section and put some sticky threads or posts in there. I'll vote for this one (which will save me from having to bookmark it for however many years it takes my kid to become elligible).
__________________
wabmester is offline   Reply With Quote
Re: Kids & IRAs.
Old 10-19-2005, 07:08 PM   #29
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: Kids & IRAs.

Quote:
Originally Posted by wab
... which will save me from having to bookmark it for however many years it takes my kid to become elligible.
Hmmm... perhaps you should take a look at whatever your kid is producing the most of right now and pay at the wholesale rate?

Dory, BMJ, any interest in starting "FAQs" or "ER Pearls" sections?
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Kids & IRAs.
Old 10-19-2005, 08:39 PM   #30
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,318
Re: Kids & IRAs.

Thx, Nords'
It looks like the bulk of the effort is in the state tax area, and finding a fund family that will take on kids IRAs at reasonable fees. The Federal side of the equation looks fairly straightforward.

Looks like your mil training comes in handy for navigating the bureaucracy and forms, though. I think a lot of people would give up by the third form.

It looks like an incredible thing to do for your daughter, though. Especially since your low-stress ER lifestyle means you might live so long she'd need to wait 60 more years to get anything in the way of an inheritance from you guys. The Roth means she might just be able to ER herself one of these days, or have a good headstart on it. I feel like this sort of move is an everyman's version of what really rich parents do for their kids to keep them in club dues and yachts for life.
__________________
ER for 10 years; living off 4.3% of savings (and a few book royalties ;-)
ESRBob is offline   Reply With Quote
Re: Kids & IRAs.
Old 10-19-2005, 09:27 PM   #31
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Re: Kids & IRAs.

Quote:
Originally Posted by Nords
Well, that's good news. I'll just buy a cheap ETF.

Anyone have customer-service & fee-charging opinions about Scottrade? Weren't they just bought out & raising fees, or am I mixing them up with E*trade & the other xxx-Trades?
It was TD Waterhouse/Ameritrade. Scottrade is still the same. Customer service is good. Greg says get the local office number and talk to them always for service.
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Whoops, not so fast.
Old 10-22-2005, 10:43 AM   #32
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Whoops, not so fast.

Quote:
Originally Posted by ESRBob
Thx, Nords'
It looks like the bulk of the effort is in the state tax area, and finding a fund family that will take on kids IRAs at reasonable fees.* The Federal side of the equation looks fairly straightforward.

It looks like an incredible thing to do for your daughter, though.* Especially since your low-stress ER lifestyle means you might live so long she'd need to wait 60 more years to get anything in the way of an inheritance from you guys.* The* Roth means she might just be able to ER herself one of these days, or have a good headstart on it.* I feel like this sort of move is an everyman's version of what really rich parents do for their kids to keep them in club dues and yachts for life.
There may be another reason that this hasn't caught on-- the IRS.

I hate like hell having a good idea, nurturing it to fruition, researching the rules, applying logic to arrive at absolutely the correct result, and being shown that it'll never work for reasons that have nothing to do with rules or logic. Spock must feel like that when he's living with humans.

My BIL the CPA says the deal won't work. He's been doing accounting & taxes since high school and has worked himself up to partnership in a DC firm that handles a lot of high net worth customers. He's procesed W-2s with Medicare deductions in the six figures, seen plenty of stupid tax tricks, and gone through more audits than anyone should ever have to see. Most of the clients are tech entrepreneurs, sports stars, trust fund kids, and other people who love pushing the envelope but don't want to read IRS Pub 15. So I think that he knows what he's talking about and he has the experience to prove it.

He says that the IRS won't see a single rental property as a "sole proprietorship" business and that even if I meet the textbook definition of a real estate professional, I'm still not considered to be one. One rental property is apparently viewed as more of a hobby than a business (and we know how the IRS feels about deducting hobby losses). The RE professional definition is intended for the subject of deducting passive losses and not for determining whether I'm running a business. Two (preferably many more) rental properties and a realtor's license with self-employed income would be necessary for a CPA to feel that it appears "legit". He appreciates that I have the facts & definitions straight but he believes the IRS would immediately flag an audit when they put together the kid's W-2 and our tax return's Schedule E. Then the burden would be on us to "prove" that I'm a real estate professional... and adversarial relationships with the IRS are expensive. While the IRS won't normally waste their time chasing after one-property landlords, they might be happy to make an example of one who pissed them off in other areas. As much as I enjoy nuclear engineering, I don't want to spend the rest of my life producing increasingly detailed rental-property records.

An alternative would be to pay the kid for domestic employment (not chores!) using a W-2 & Schedule H. However my BIL doubts whether the kid could legitimately claim $4000/year income without raising another audit flag. (Gotta keep really detailed records for that one too, and again the judgment on that call rests with the IRS.) Although the concept could work at less than $4000/year, that also means paying high expenses for small IRA accounts. Essentially the legislative risk is way out of proportion to the possible reward, and again he's seen the audits to prove it.

But he likes hanging out at our house so he had another proposal. Many of his clients (who are advised by tax attorneys before he does their tax returns) just buy I bonds. It's a lower return (over the long run, probably a lot lower) and it's tax deferral, not tax avoidance, but it's a much lower legislative risk for the return. And of course if the kids have W-2 income from teenage part-time employment, then all of that W-2 income goes into an IRA. When the kid has "some" W-2 income then it's a lot easier to supplement it with $1000-$2000/year for domestic employment and thus max out the IRA contribution.

The huge risk reduction probably makes an I bond a better idea, too. $4000/year fits our annual college savings, so the kid's Roth IRA was going to fill that plan (which currently is funded by a UTMA). The UTMA is all equities (Berkshire Hathaway & Tweedy, Browne) so it's a good idea to put in a couple years of I bonds before the kid has a summer job. We could buy the I bond in our names as an educational bond (no tax) or just gift it to the kid for 30 years of tax deferral at her discretion. The UTMA is intended to be drawn down for college tuition & expenses (before age 21) so we could go either way.

Yeah, I know, no college aid. But we're beginning to think that an ER's retirement portfolio is drooled overseen by most college financial analysts as a huge resource to be dedicated to a child's college education, not as the assets backing a long-lived ER annuity. So while I'll probably fill out a FAFSA just for the sheer hedonistic thrill of it, I doubt we'd be seeing any grants and my UTMA/IRA/I-bond schemes wouldn't mess that up. I'm not sure I care to embark upon the loan process unless it has an incredibly low interest rate (we'll see about that in four years). But of course the kid will be chasing plenty of merit scholarships!

Your circumstances may be different than these, so if anyone else is planning to try this at home then consult a trained professional. For us the idea can work when the kid has "real" W-2 income, and in the meantime an I bond provides better diversification.

Quote:
Originally Posted by ESRBob
Looks like your mil training comes in handy for navigating the bureaucracy and forms, though. I think a lot of people would give up by the third form.
I did miss one bureaucratic step. Filling out a W-2 requires a federal employer ID number; it can't just be done with the boss' SSN.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Kids & IRAs.
Old 10-22-2005, 10:29 PM   #33
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,318
Re: Kids & IRAs.

So does this mean you'll be buying another rental property?
__________________
ER for 10 years; living off 4.3% of savings (and a few book royalties ;-)
ESRBob is offline   Reply With Quote
Re: Kids & IRAs.
Old 10-22-2005, 11:55 PM   #34
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: Kids & IRAs.

Yeah, I forgot about that. The IRS doesn't consider being a landlord to be "work." (They've obviously never tried it.)

So, you'll have to start selling vegetables from your vegetable garden and pay your kid to pick them. I don't think the IRS actually cares if you make any money selling the vegetables as long as you give it your best shot.
__________________
wabmester is offline   Reply With Quote
Re: Kids & IRAs.
Old 10-23-2005, 10:46 AM   #35
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: Kids & IRAs.

Quote:
Originally Posted by ESRBob
So does this mean you'll be buying another rental property?*
We're always looking. But at these prices, we ain't buyin'...
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Kids & IRAs.
Old 10-23-2005, 11:06 AM   #36
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,615
Re: Kids & IRAs.

What does the kid say about all this work getting locked up in an IRA? Maybe the kid would rather buy IPods, clothes, cell phones, music, junk food, etc.

I'm pretty sure my 14-year old is not thinking about ER, much less FI at this stage of her life.
__________________
LOL! is offline   Reply With Quote
Re: Kids & IRAs.
Old 10-23-2005, 06:45 PM   #37
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: Kids & IRAs.

Quote:
Originally Posted by LOL!
What does the kid say about all this work getting locked up in an IRA?
Good grief, we haven't told our kid about her UTMA or the education savings bonds, so why would we tell her about an IRA?

I can see using the first W-2 as an IRA incentive-- hey, kid, put half your paycheck in your IRA and we'll match it. And at that point I might be willing to disclose the existence of her own IRA.

But you gotta know your kid(s). So far ours has a tendency to let the funds pile up, but she has a lot to learn about saving & investing.

A credit card for the 13th birthday... that's another post.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Kids & IRAs.
Old 10-24-2005, 07:13 AM   #38
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 12,964
Re: Kids & IRAs.

"13" would be an appropriate age... :P
__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is offline   Reply With Quote
Re: Kids & IRAs.
Old 10-24-2005, 07:53 AM   #39
Full time employment: Posting here.
TargaDave's Avatar
 
Join Date: Jul 2005
Posts: 588
Re: Kids & IRAs.

Quote:
Originally Posted by Nords
Good grief, we haven't told our kid about her UTMA or the education savings bonds, so why would we tell her about an IRA?

But you gotta know your kid(s). So far ours has a tendency to let the funds pile up, but she has a lot to learn about saving & investing.
Nords, I am really confused. Are these work activities your daughter does on a regular scheduled basis, and you would like to pay her in the form of her own IRA to teach her the value of saving but don't want to tell her about it right now?? Does she have an outside job working for anyone else (babysitting, etc) or is her income dependent on you?

__________________
TargaDave is offline   Reply With Quote
Re: Kids & IRAs.
Old 10-24-2005, 09:55 AM   #40
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: Kids & IRAs.

Quote:
Originally Posted by TargaDave
Nords, I am really confused.* Are these work activities your daughter does on a regular scheduled basis, and you would like to pay her in the form of her own IRA to teach her the value of saving but don't want to tell her about it right now??* Does she have an outside job working for anyone else (babysitting, etc) or is her income dependent on you?
Sorry, I'm not trying to be confusing but I've buried myself in the details.* The answers to your questions are pretty much "yes", "not right now", "no", and "yes".

The main reason for this research project was to jump-start the IRA compounding.* She's old enough to arguably earn enough in a year to be able to make the minimums of custodial accounts.* I have no idea what those minimums are but we feel comfortable that she could earn at least $1000/year.

It would be nice to involve her in an IRA at this age to teach her about the value of savings.* But I agree with David Owens' thinking that kids up to this age view savings as a way for parents to unjustly take away their money, which motivates the kids to spend it as fast as they get it before their parents make them surrender save it.* We've succeeded with Owens' Bank of Dad CDs and even a version of a 401(k) but I don't think a 13-year-old will appreciate the value of nearly five decades of compounding with the same excitement that an adult should.*

She doesn't have any outside income yet-- no babysitting or other customers.* Hawaii labor laws allow part-time work at age 14 and she'll probably get a job at the local Kumon franchise, but again that income by itself probably wouldn't earn enough to make the minimums of a custodial account.

But every month she works with us on the rental property (yardwork, minor repairs) and she's theoretically capable of handling the books (for which we'd pay her as motivation).* She has the usual load of unpaid household chores & self-imposed punitive fixits but she also earns side money cleaning cars, doing yardwork, painting, and handling minor home repairs.* She's been exposed to enough of our HGTV habit (although with her it tends to be MTV's "Cribs") that she wants to learn the skills.* If she did the rental property's books and regularly worked other projects (say five hours per week) then she'd easily earn $2500/year.*

When we pay her $20 for yardwork we have the usual conversation about what she'll do now that she's rich.* Three or four years ago the money would smolder in her pocket until we could get her to the Fun Factory.* Today it tends to be a trip to the movie theater (plus a Jamba Juice & snacks on the side) but she usually only does that once a month.* She borrows Harry Potter books from the library and asks for them as gifts (or spends her gift money on them) instead of standing in line at WaldenBooks.* She's more likely to rent a library DVD for a buck than she is to blow it on the latest releases at Wal-Mart.* She's good at saving for a major purchase (personal CD player) and she's just as likely to deposit the money into her Bank of Dad CD for six months' compounding.* I think that's about as much as we can expect up to this point.*

Spouse & I would quietly set aside another $20 to put into her IRA but we wouldn't discuss that with her yet.* We're trying not to overwhelm with the college-financing details and it's way too soon to discuss retirement.* She knows we're saving for college but she doesn't know all the arcane ways of paying for it (of which this IRA would be one).* She knows we're trying to save enough for any school in the nation but every time she gets excited about Stanford or Yale we steer the conversation to smaller schools with more individual attention & better value.* We also tell her that she needs to haul her weight with merit scholarships and/or a job.

She has a handle on money and will probably not blow her UTMA or IRA on a Mini-Cooper-- I think-- but at her age we feel it's more important to focus on learning how to invest or to handle spending than it is to know how to set up a UTMA or an IRA.* We could show her that IRA compounding chart (one investor starts in their 20s and stops after 10 years, another starts in their 30s and never catches up to the first investor) but I think that pushing an IRA at this age is pressure without purpose.* We'd vaguely considered discussing an IRA at age 16 or 17 by showing her an account balance and saying "Remember how when you were 13 you started earning money at these jobs, we subsidized your IRA and look how it's compounded..."* But the main reason for this research was my interest in exploiting the tax laws for college funding and a jump on compounding.

So we'd hoped to start the IRA now and reveal its accomplishments in three or four years.* However if one rental property doesn't make a business in the eyes of the IRS, then we'll probably put this project on hold until she starts pulling in earned income from an outside job.* Schedule H as a sole source of income could raise an IRS inquiry, but we don't see any objections to supplementing outside employment with domestic income.

Her birthday next week will unveil two other financial-management challenges-- the clothing allowance (handed out six months at a time, but it has to last for the entire six months) and a low-balance credit card.* (Judging from her checking account experience, we think she should have at least four or five years' mistakes with a credit card before she leaves home.)* At this age those two things will be more than enough, and much more likely to be appreciated than an IRA.
__________________

__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Kids & IRAs redux. Nords Young Dreamers 9 07-11-2006 08:42 AM
Cost of kids accountingsucks Young Dreamers 24 06-21-2006 07:37 AM
Square peg looking fwd to ER with kids Green Jeans Hi, I am... 6 04-08-2006 04:56 PM
Good Schools for Early Retirees Kids thinkingaboutit Life after FIRE 24 03-05-2006 04:07 PM
Overweight kids in Australia... Lancelot Other topics 18 12-16-2005 08:47 AM

 

 
All times are GMT -6. The time now is 10:13 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.