Any child, regardless of age, can contribute to an IRA provided they have earned income; others can contribute too, as long as they don’t exceed the amount of the child’s earned income. A child’s IRA has to be set up as a custodial account by a parent or other adult.
Here’s what the IRS says about contributions:
“To contribute to a traditional IRA, you, and/or your spouse if you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment. For tax years beginning after 2019, there is no age limit to contribute to a traditional IRA.
Compensation for purposes of contributing to an IRA doesn’t include earnings and profits from property. For example, earnings like rental income, interest and dividend income, or any amount received as pension or annuity income, or as deferred compensation. In certain cases, other amounts may be treated as compensation for purposes of contributing to an IRA, including certain alimony and separate maintenance payments received, certain amounts received to aid in the pursuit of graduate and postdoctoral studies, and certain difficulty of care payments received.”
For more information, you can read about it on the IRS website by clicking [HERE]
Furthermore, a parent or guardian could potentially hire their children to perform work at their house or business. Importantly, they would need to issue W-2s or 1099-Misc forms. The income received must be reasonable, considering the child’s age and level of experience.
Lastly, as a crucial point of consideration, uDirect IRA Services, LLC is not a fiduciary and does not provide professional advice on tax, legal, accounting, or investment matters. Therefore, it is highly recommended to seek expert advice when exploring SDIRAs and investments. For additional support, feel free to contact us at (866) 447-6598 or info@uDirectIRA.com. To begin your journey, you can complete an online application [HERE]