Contributions from a Minor to a Pension or Retirement Account

June,

If a young person (under 18) earns money doing odd jobs (like mowing grass etc...) and then puts this money into a Roth IRA is he in any way exempt from having to file a tax return and thereby able to avoid paying self employment (social security) tax?

I realize that if he were going to use the money to buy comic books or something he would never even consider reporting the "cash" income, but I'm assuming opening the Roth IRA will put him on the IRS radar.

John in South Carolina


Hello John,

Regardless of how young the indie he may contribute to a pension only if he has taxable earned income. So, no he cannot hide the income and also put it into a pension.

If the grass cutter wanted to contribute, let's say, $4000 into a ROTH -- or any other pension/retirement account -- he must file a tax return showing that he had at least $4,000 taxable earned income.

Were he an employee that would be $4,000 in wages, for an indie that would be $4,000 net profit.

To establish a pension plan for a minor the account must be opened and held by an adult, as guardian, in the name of the minor. While the adult is the individual authorized to perform transactions on the account, the minor is considered the registered owner for tax purposes.

Although there is no minimum age, on various kinds of pensions there is a maximum age at which you may not longer contribute.

Best,
June