@Parker
Actually, they are.
Parker said:
@Parker
Actually, they are.
Chore money isn’t taxed income. Are you reporting it and paying taxes on the allowance?
Parker said:
@Parker
Actually, they are.
Chore money isn’t taxed income. Are you reporting it and paying taxes on the allowance?
Parker said:
Parker said:
@Parker
Actually, they are.
Chore money isn’t taxed income. Are you reporting it and paying taxes on the allowance?
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Parker said:
@Parker
Actually, they are.
Chores don’t count as earned income, but things like babysitting or yard work do. If they make money from that, you can match it. Just make sure it’s reported properly.
Parker said:
I’d recommend a Roth IRA, but the kids need earned income. Chores can count if you document it, and you or family can match what they put in. Start small, maybe $50 a month.
Isn’t that a bit close to tax fraud?
@Emory
Where’s the fraud in that?
Parker said:
@Emory
Where’s the fraud in that?
Saying that allowance or chore money counts as taxable earned income.
Parker said:
@Emory
Where’s the fraud in that?
Saying that allowance or chore money counts as taxable earned income.
A quick search will tell you that as long as you keep a record of the date, chore, and payment, it’s perfectly legit.
But hey, if you prefer to park the kids’ money in a savings account earning next to nothing, that’s fine. We’ve been doing this in my family for years without any issues.
@Parker
Do you have any references for that?
@Parker
It sounds like you’re confusing account types and strategies. Yes, investing for kids is smart, but setting them up for an audit later because of questionable reporting is not. A $5498 for a 1-year-old will raise some eyebrows eventually.
Just set up a kids’ savings account with your bank.
Reese said:
Just set up a kids’ savings account with your bank.
I’m looking for something with more growth potential if possible.
Reese said:
Just set up a kids’ savings account with your bank.
I’m looking for something with more growth potential if possible.
Sounds like you’re after an investment account. I’d still say a 529 is a good option, and you can roll over $35k to a Roth later. If you’re not interested in college savings, maybe look into a UTMA account, where the money transfers when they turn 18 or 21.
@Reese
Sorry, I meant to say an investment account. I’ve updated my post.
Vance said:
@Reese
Sorry, I meant to say an investment account. I’ve updated my post.
This forum might not be the best place for this, since people’s knowledge varies a lot here.
Your main options for investing for kids are:
- 529 plan (for education)
- Custodial UTMA/UGMA accounts
- Standard brokerage account (in your name)
- Custodial Roth IRA
Since you know about 529s, I won’t get into that, but you should check out the new Roth IRA rollover rule. The money isn’t locked in these accounts.
If you go the custodial route, you can open a brokerage account in their name, but you’ll need to hand it over when they hit 18 or 21. Look into r/Bogleheads for advice on index funds.
Alternatively, open a standard brokerage account in your own name and gift the money later when they’re older.
Finally, a custodial Roth IRA can be opened once your child has a job, and you can contribute up to the amount they earn or the annual limit. Don’t try to count chore money as earned income—it’s not allowed by the IRS.
Either way, don’t just save—invest in something like stock index funds for the long term.
@Ash
That’s the way to go! Start with a UTMA at one of the big brokerages and invest in something like VTI or VXUS.
One note: make sure you open the account under the kid’s name. You can gift up to $18k per child per year tax-free, so take advantage of that while you can.
@Avery
Just keep in mind that funds in the child’s name, like a UTMA, count as their asset and could affect financial aid in the future.
Reese said:
@Avery
Just keep in mind that funds in the child’s name, like a UTMA, count as their asset and could affect financial aid in the future.
Good point! If you think you’ll need financial aid later on, definitely think about this more carefully.
@Ash
Great advice here! And remember, chores don’t count as earned income, but if they do jobs like babysitting or yard work for neighbors, you can match what they make. Don’t mess with the IRS, but also don’t miss out if they’re earning real money.