Conference nyoss1::market_investing

Why be concerned about your dependents' retirements?  By the time they 
retire, you'll be interested in other things if you're still around.

Wouldn't it be better to put your emphasis on teaching them to earn a 
living and giving them a start with such things as a college ed, business
start, or home down payment?  If these aren't accomplished . . . well...
Tax free US bonds seem like a good choice for college.

Moffatt

    
    those aren't mutually exclusive options.  i think it's a great idea to
    set up an IRA for young kids, if it is possible to do so.  I recently
    calculated that 2K/year for 5 years plus a guesstimate for social
    security benefits would account for somewhere between 60-80% of a
    reasonable retirement income (assuming the money returned 11.5%
    throughout the 60 years prior to retirement).
    
    if I could afford the 2K/year * 2 kids for the next 5 years, I'd
    definately go for it.
    
       /Jim
    

    Yes, it's not mutually exclusive.  And helping to fund your
    childrens' retirement can be one way of helping to fund your
    grandchildrens' college educations (by freeing up money for
    your children).
    
    While I can't guarantee that IRAs will stick around as tax-free
    vehicles for the next half-century, I am curious about the
    details.
    
    1.	Is the adult restriction to max( 10% of earned income, 2K )
    	in effect?
    
    2.	If a parent pays a child, must that parent also do Social
    	Security payments, etc., as though the child were an 
    	employee, or can the parent pay the child as a contractor
    	(and is a Keogh then possible?).
    
    3.	How does this interact with the under-14, income-over-$1K
    	taxation rule?
    
    And so on.
    
    At the moment it's idle curiosity, and likely to remain so.
    But I like knowing things.
    
    		-John Bishop

    	I looked over the description in Pub 17 (in my office).  There
    appears to be no age restriction.  It's %100 (not %10, a typo?) or
    $2000, whichever is smaller.  I would not wish to defend "wages"
    from a parent in an audit, unless you can demonstrate that it's
    comparable to what you would have paid for the "services" provided
    on the open market.  However, while I admire taking such a LOOOOOOOONG
    term view of things, it is difficult to justify in the short term.
    
    	I would point out that currently financial aid at colleges tends
    to consider retirement funds as untouchable (not part of your real
    usable assets), and hence putting such money into an IRA may legally
    hide it over the college years.  This applies to parents usually, but
    would equally apply to children.  I forget the number of years where
    the penalty on early withdrawal is breakeven, but it strikes me that
    it's less than ten years.  This makes it even more attractive, since
    the money could be withdrawn after schooling, paying the penalties,
    and still come out ahead.
    
    Cheers!
    Dave Eklund
    

    
    	I second 150.4. 
    
    	Also, note that $1 invested to return 8% after
    	inflation (whiich I think is comparable to long-term stock
    	returns) will grow to over $100 in 60 years (figure retirement
    	for today's 5 year olds at say 70). Thus, every $1000 you
    	can get into your child's self-directed IRA invested in a
    	growth mutual fund will yield him $100,000 in today's dollars
    	at retirment. I have 4 four children, and that seems a cheap
    	way to provide a "lifelong" gift.
    
    	The problem is how to get children earned income. If you
    	have a business, that's easy. I don't (at present) but
    	read of another approach. If you are remodeling your house
    	(I am finishing my basement and also building a wooden fence
    	around my backyard) I read (I can't recall the book at present)
    	that you can pay your children reasonabel wages to work
    	on those projects and deduct what you pay them from the
    	basis of your home just as you would the money you
    	pay a contractor to do such work. For example, I am paying
    	my 12-year old minimum wage to dig the fencepost holes and
    	to help me put the fence up. Five wonderful advantages:
    		(1) He is excited about working!
    		(2) He is learning a skill (the carpentry, not
    			just digging holes---I did this sort of work
    			to pay for my college)
    		(3) Its taking a lot less of my time to do the job
    		    and the cost of that time saved is being plowed
    		    back into the family
    		(4) He and I are having a lot a fun---lots of chatting
    		    about work and interests---Dad and son stuff
    		(5) We agreed that part of his pay would go
    		     to savings. I will be setting up a self-drected
    			IRA for him as son as he accumulates enough money.
    
    
    
    	Anybody else out there doing this (are all you all just groaning
    	under the college tuition savings programs you've undertaken)?
    
    	John K
        

    re .5
    
    Are you also paying his Social Security, etc.?  I don't know
    at what amounts you convert from casually handing over a five-spot
    to being an employer.  And I wonder what documentation you'd need
    to confirm that the money was earned income and not a gift.
    
    		-John

    Pay him as a subcontractor, up to $400/year.  (As much as $433, unless
    they change the rules for the SE form.)  Document it by sending a 1099
    to the IRS, and have him file a Sched C to report the "self-employment"
    income.
    
    The $ you spend are *added* to the basis of your house...
    
    You said you had agreed that "part" of the pay would go to
    savings...work it out so that part is the subcontractor income, and
    have the rest be a gift.  This will limit the amount you get to add to
    your house basis, but keep you out of the quagmire that goes with being
    a formal "employer", reporting, withholding and paying the employer
    match on social secutiry, etc.
    
    Even without all the tax twiddling, it sounds like you've come up with
    a good way to keep "dad" and "friend" synonymous.  Good job!
    
    SteveSov

    RE .6 and .7
    
    The issues you raise about FICA and other employer withholding 
    	responsibilities. I haven't fully resolve that yet, since I
    	have two conflicting pieces of data:
    
    	(1) Congress ended the exemption from FICA taxes for wages
    	     paid to a spouse, parent, or minor child in the 1987
    	      Omnibus Budget Reconciliation Act of 1987 (ref = "Starting
              and operating a business in Massachusetts," by Jenkins
    	     and Curtis, Oasis Press, 1988)
    
    	(2) "Salaries paid to children under 19 are not subject to
    	     Social Security tax"  from page 351 of "More Wealth Without
    	     Risk" by Givens, Simon & Schuster, 1991
    
    	This is one of many items I will be discussing with a tax attorney
    	shortly. 
    
    	If anyone has ony solid information on the current status of this
    	question, I would be very interested. Even if FICA must be paid,
    	I think it is worth it to get the IRA funded and growing Fed
    	and State Tax free. I have other uses for the $500 kiddie tax
    	exemption on unearned income that he enjoys.