Well it is clearly a scheme to get money into the kids IRA, there is no doubt about that.
The question is “Hey, I want my 1 year old to generate income that he can put in to an IRA. How can I legally do that?”
Answer, according to bobman:
Have a business where you need them to model, have a professional photographer, pay them market rates, and file a W2.
It sounds like if you do all of those things, there is nothing the IRS can do.
Above is also one reason why I don’t do it myself. It’s a fucking pain in the ass. Monetizing a blog is not easy. I suppose you could have an income losing business and do it too, but that will only work for a couple of years.
And if it is a scheme to cram money into your toddler’s IRA, then the IRS can probably make your life pretty miserable over it. Seems hard to imagine it’s at all worth the trouble you’d have sleeping at night.
I don’t have much to add to this conversation because I wouldn’t have ever thought of a scheme like this, which might be why I’ll never be rich. I do, however, max out my Roth IRA each year because I don’t think the above statement will be true by the time I hit retirement (actually, I hope it isn’t true).
As Riverman alluded to, there are apparently plenty of people who do some version of this.
I’d have no trouble sleeping it I could do it the way that it was described. There is literally nothing illegal about it. If the business is a real business (i.e., profitable) and has legitimate reason to use the photos, then I’d sleep just fine. Both of those things are a lot easier said than done. This isn’t lying on your tax forms, it’s real effort.
Yea I’ve thought about that too, whether the Roth law will sustain whatever comes (and whether it should). I recognize that supporting some of the politicians that I do could result in a financial impact to me down the line, I just hope it isn’t in the form of tens of thousands of dollars of one-time Roth taxes…
I think that sweeping changes to middle class retirement instruments and tax levels are not likely to happen. Mostly because it’s pretty unfair to make big changes to them and many many people have a bunch of money (and therefore emotional investment) in these instruments. If a politician tries to make Roth appreciation taxable then tens of millions of Americans are going to absolutely lose their shit. I just don’t think it will happen.
Yeah, it is very clear that you can pay your kids market rate for work they do for you. The fraud is that people pretend that their kids are doing work when they’re really just paying with toys.
The whole thing seems insane though, because wages attract a ~12% FICA combined tax, so there’s absolutely no way it makes sense.
Sure. I think we mostly agree. All I’ll say is that “playing with toys” or trying on clothes can be actual work if you have a business where those things are necessary for someone to do. Creating such a business is nontrivial.
I don’t know the tax details, and I’ll take your word for that. I will say that anyone that wants to do this needs to pay all the applicable taxes. Otherwise, there is a huge problem.
Of note, I did find this with 2 seconds of google:
If you own a sole proprietorship or partnership where both owners are parents of the child, the child is not subject to Social Security and Medicare taxes until age 18. You do not need to pay the employer contribution for your children on payroll.
Exactly. When I was a landlord, I’d sometimes enlist my then preteen daughters to help clean up apartments being turned over. This was real work for which I would pay them, and they could have put this money into an IRA if they/we had wanted to.
Rather different from paying one’s baby for posting it’s pictures on a personal blog.
As I mentioned a couple of times, it’s not exactly a personal blog. It’s monetized. He actually makes a small profit off of it after all expenses (including child modeling).
Ya it’s $56,000 (or $62,000 if 50 or older) if your plan allows after tax contributions. But be careful, that cap includes any contributions your employer makes.
Looking for some perspective on home buying. If two people want to buy a home together and one has very good credit and the other has very bad credit, how does this work?
Person A: Credit score in the 400s, in default on some credit cards, currently taking advantage of a program helping them to address these issues. Income mid-20k.They are currently renting and pay ~$900/month.
Person B: Credit score in the high 700s, no black marks on their credit score, capable of paying $1,500 month towards a mortgage. Income mid-70k.
Person B went to a bank to discuss home loans, and the loan officer said up to $180k could be possible. Does adding Person A to the equation make home buying easier, harder or impossible? Person A and B are not married.
When I was in that scenario they would not count both incomes without using both credit scores, and they used the lower of the 2 scores. If this is a Fannie/Freddie rule, you’re screwed, if not there might be some wiggle room. I’d try local credit unions.
I did a deep dive on this as part of my mortgage refi process–basically my wife got into a $100 dispute with the cable company that they sent to collections, which has a shockingly large impact on your credit score. We have otherwise identical credit histories, but my score is ~100 points higher than hers, solely because her name is on the cable bill. There are two elements here:
The bank needs to underwrite the borrower’s(s’) income-to-expense ratio. The benefit of adding another borrower is that you have more income to boost this ratio. However, if the primary borrower has enough cashflow to support the loan, then an extra borrower adds nothing.
The bank will reduce your joint credit scores to a single number via the following algorithm: take the median from all three reporting agencies for each borrower, then take the lowest median. So in your situation, the loan would be underwritten with a credit score in the 400s.
Based on your facts, I would strongly expect that adding A to the loan will cause them to reject it. There’s no reason not to ask though. Just explain the facts to the lender and see what they say. Mortgage loan officers get paid to write loans, so they will be happy to explain how to set up your application to make it easiest to get through underwriting.
