Pay your Kids, Open IRA

You can pay your kids to do work on your properties and put the money in IRA accounts for them.
This is especially a good idea if youve already maxed out on your and
your spouses IRA contribution for the year.
So if youre at a high tax bracket the end of the year, hire your kids to landscape your rentals. Youre better off avoiding the taxes on your extra income, and the money will be safe in a tax free shelter. Its a good way to help your kid prepare for their first property purchase.
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roth or regular?

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It's have to be a ROTH or there'd be huge penalties for using the traditional IRA funds to purchase real estate.
Then if it's a ROTH there's no current tax deduction, meaning that some of the current wages* would be subject to income tax. *Amounts above $5350 for federal.
I'm not sure how the funds in an IRA or ROTH impact college funding, like grants, loans or other forms of tuition assistance. But it needs to be looked at.
Also, when the child reaches the age of majority they can use those funds as they see fit, which doesn't always mesh up well with mom & pops plans.
I suspect the real initial tax savings would be minimal, given that people in higher tax brackets can't currently deduct rental losses, the issues with the physical loss of the money into the kids IRA / ROTH, the loss of control of those funds once the kids turns of legal age.
You'd also need to be sure that the pay to the child is fair for the actual work they do, and that the work you have the child do does not violate federal, state or local laws addressing child labor and safety.
--
Paul A. Thomas, CPA
Watkinsville, Georgia
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once any folks "pay" their kids...the can put the $ into any type of acct they wish..i guess...roth/traditional, 529, a sav, a checking, a cd...etc....whats the diff??..
On Sep 25, 12:48pm, "Paul Thomas, CPA"

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