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Aiming_4_55 · 04-19-2023, 01:43 PM

Quote:

Originally Posted by SevenUp

Could you claim them as dependents or did one or both contribute >50% to their own support?

Both are claimed as dependents for now. When I RE next year or so, it'll be less important to me and they can take the deduction if my thinking is correct. I just turned 54 and been FI for a few years, so I've been OMY and still aiming for 55 to retire. If I retire next year after RSU/Bonus in April, I will probably want the deductions, but starting 2025 the deduction will be less important to me.

disneysteve · 04-19-2023, 02:11 PM

Quote:

Originally Posted by Aiming_4_55

I'm a bit shocked as well for a 16 year old kid. It's a casual restaurant with dine-in within a middle class suburb, so tipping for good service is welcomed. Kid gets on co-workers when they slack, so very much a hard worker.
Unfortunately, a fair amount of people are bad tippers. Works 5 or 6 shifts (5 hour shifts) during the school year and full time during the summer/winter breaks. Kid maintains an A average and involved in one sport, so kid keeps busy. I have to ask when I can schedule 1:1 time... for a Dad/kid sushi night or movie!

Fantastic! Good for them. They'll go far in life and starting their retirement accounts now will pay off big time down the line. I had my daughter start her Roth at 16 also with her babysitting money. Nothing like 5 decades of compounding magic.

cathy63 · 04-19-2023, 04:45 PM

Quote:

Originally Posted by Aiming_4_55

Both are claimed as dependents for now. When I RE next year or so, it'll be less important to me and they can take the deduction if my thinking is correct. I just turned 54 and been FI for a few years, so I've been OMY and still aiming for 55 to retire. If I retire next year after RSU/Bonus in April, I will probably want the deductions, but starting 2025 the deduction will be less important to me.

Unless they are spending their income to provide more than half their own support, you can claim them as dependents for any year when they are under age 24 and in school for at least part of 5 calendar months. Income they put in savings (IRA, Roth or other) is not counted towards support. Scholarships are also not counted.

If your AGI will be less than $80K ($160K if MFJ) while they're in college, then you should almost certainly continue to claim them. You as the parent are eligible for education credits that the students can't claim on their own returns.

SecondCor521 · 04-19-2023, 06:11 PM

I would have recommended any contributions go to a Roth. Yes, they'll pay 10%/12% taxes now, but I consider that a good deal compared to what they'll pay later. But any retirement contributions now are fantastic.

Keep in mind the retirement savings contribution credit on Form 8880. I don't think they can claim it if a dependent, but there may be a college year in there somewhere where they are relatively low income, have the money to make the contribution, and qualify for the credit.

Either the student or the parent can claim the education credits if AGI below $80K/$160K. However the student will probably not qualify for the refundable portion of AOTC. So it's usually better to have the parent claim the child and the AOTC if AGI is below the limits (and the kid otherwise qualifies, which most do). You can read up on most of the education tax benefits in general in IRS Pub 970.

**MarieIG** · 04-19-2023, 06:17 PM

Quote:

Originally Posted by ivinsfan

I feel like you are assuming alot with the 50 year comment. I wouldn't be a bit surprised to see the tax free earning part of Roth's disappear or be tied to income levels like SS.

I might favor the Roth strictly on the existing 5 withdrawal rule as that money vests it can become an emergency fund.

Check back then in 50 years. Otherwise, I'm standing by my comment.