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IRA For Kids?

Updated: Jan 4, 2023

I remember my first job. Do you? I earned a lot, but mostly not in money, more in life-skills and attitude.

Sometimes it seems that the workforce is comprised less of teenagers these days. Not sure why. Perhaps many cultural issues at play, such as high Minimum Wage, other ways to make spending money like putting out You-Tube videos, etc.

If your child does work, and I highly encourage you to try and get them to go get a part-time job, if nothing else, to learn those ever important “skills” that come with learning how to work with difficult people, learning how to follow instructions, learning how to find work and stay busy, etc., then consider helping them fund early IRA contributions.

Actually, when it comes to what kind of IRA is best, the better choice is a ROTH IRA since their earnings are usually going to be too low to be taxable.

For 2022, the maximum IRA or ROTH IRA contribution limit is the lesser of actual earned income or $6,000. Like all of us, your child has until April 18th 2022 to open and fund an IRA or ROTH IRA for 2021 tax filing.

Believe it or not, a few kids actually could bump into the upper income limitation (if their You-Tube video goes viral?) of phasing out the amount between $129,000 and $144,000.

If your child’s earnings are from personal services rather than W-2 employment, they will need to file a tax return and report that on a Schedule C and also, they must pay Self-Employment Tax. (Years ago, I made my 9 year old son do that when he ran a very successful lawn mowing business in our neighborhood.)

If you own a small business, you could employ your child. BONUS, under-age 18 children of proprietors are not subject to Social Security, Medicare or FUTA taxes! (No such tax savings benefit for corporation type businesses though. Darn! BUT, you still get to deduct their wages as an expense for your business, so not a total loss.)

If you started your child out early with $2,500 a year into a ROTH IRA for four years at a 5% annual return, the account would be worth $82,000 in 45 years. If an 8% return, the account would be worth $259,000. And that is if they NEVER make another contribution for the rest of their lives, which hopefully, they will be inspired to keep contributing to at some point, which would make this account grow a LOT.

Have you heard? Prov 24:27 says, “Prepare your work outside, and get your fields ready. Afterwards, build your house.”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at Also on Facebook.

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