IRA Contributions for Children with Part-time Jobs

If you have children with part time jobs, they may be eligible to make an annual contribution to an IRA, which is an excellent opportunity for a child to get a head start on retirement.  There is no minimum age requirement to start a traditional IRA contribution or a Roth IRA.  For children a Roth is the better choice.  Roths accumulate tax free and distributions at retirement age are tax free.  Furthermore they can make withdrawals of their contribution portion free of penalty or taxes if needed for college. With a Roth there is also no tax deduction for their contribution but chances are pretty good that the income will below the tax filing level anyway.

Tax-free compounding of earnings inside an IRA is a beautiful thing!  The longer you can keep your money invested in a tax-free vehicle, the greater your wealth accumulation.  What better way to accumulate a large amount of savings than to start during childhood?   When tax-free compounding has more than 50 years to run its course, a relatively modest savings plan can produce substantial wealth.

The only requirement is that the child must have earned income. This can even be from odd jobs like mowing lawns, bagging groceries etc.  Parents or grandparents can make an IRA contribution for a child since there is no requirement on the source of the funds;  however, the amount of the contribution is limited to the child’s total earnings, up to $5,500 for 2013.

For more information or specific questions, please contact a KatzAbosch advisor at 410-828-CPAS (2727) or email: sbishop@katzabosch.com.

Submitted by Stephen M. Bishop, CPA

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