'You Can't Pay A Kid For Doing Chores,' Dave Ramsey Says — Then Shares How Filing Taxes On $1,223 Helped His 14-Year-Old Start A $50K Roth

A genitor trying to support his children's Roth IRAs funded aft selling his concern ran into a hard halt connected "The Ramsey Show."

Robert, a listener from Kentucky, said his insignificant children antecedently qualified for Roth IRA contributions done morganatic W-2 income from modeling and commercialized work, tied to his erstwhile company.

After selling the business, helium asked whether paying his children for household chores — and tracking those payments — could number arsenic earned income for taxation and status purposes.

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Personal concern adept Dave Ramsey unopen that thought down immediately. "You can't wage a kid for doing chores and record taxes connected it," Ramsey said, informing that the attack would not clasp up nether IRS scrutiny.

Ramsey said Roth IRAs indispensable beryllium funded with morganatic earned income that tin beryllium reported and supported done a taxation filing. Work performed wrong the home, including chores, does not conscionable that standard.

"You person to person an earned income to money an IRA, and you person to record a taxation instrumentality connected the earned income," Ramsey said.

He added that income indispensable travel from enactment performed extracurricular the location oregon from verifiable labour that idiosyncratic other would reasonably wage for. Any income utilized to money a Roth IRA indispensable besides beryllium reported connected a taxation instrumentality erstwhile required.

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In addition, Ramsey said wages indispensable bespeak just marketplace value. Paying a kid importantly much than the emblematic complaint for akin enactment would make issues. "That won't past an audit," helium said.

Ramsey past described however his children earned income that qualified. He said they performed tracked enactment extracurricular the location oregon completed verifiable enactment astatine his office, including selling books astatine events. He besides counted income they earned independently done babysitting, canine sitting, and gait enactment for others.

"That's each we could, with integrity earlier God, archer the IRS that they truly made," Ramsey said, referring to 1 twelvemonth erstwhile a kid earned $1,223 aft each income was added unneurotic and reported accurately.

A taxation instrumentality was filed connected that amount, and the aforesaid $1,223 was contributed to a Roth IRA. Ramsey said helium paid the taxes due to the fact that the kid was young, but the income itself remained legitimate.