Understanding earned income reporting rules for custodial Roth IRA limits

Forum|Forum|1 year ago
January 20, 2025
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A child under the age of 18 has earned income doing small jobs and tasks. They make about $7000 a year all paid in cash. Parents will match $7000 into custodial Roth IRA for the year.

And according to these two article, if the earned income is less than $14,600 a year for 2024, the kid does NOT have to file taxes?

https://turbotax.intuit.com/tax-tips/family/at-what-income-does-a-minor-have-to-file-an-income-tax-return/amp/L6HOdGp6i#article_header_2

https://www.calcapmgt.com/resource-center/tax/does-your-child-need-to-file-a-tax-return#:~:text=Your%20dependent%20children%20must%20file,must%20also%20file%20a%20return.

So confirming the kid doesn’t have to file taxes since it is under $14,600 and in cash. Parents can contribute $7000 into custodial Roth IRA?

Best answer by Bsch4477

The contribution is limited to the lesser of $7,000 or net earned income. Since they had self employment income over $400 they have to file a return and pay self employment tax. TurboTax will subtract the self employment adjustment from earnings and that’s the maximum amount they can contribute to the IRA.

Bsch4477Answer

Employee

jyeh74Author

This is confusing. It says limit is $14,600/year in order to have to report taxes not $400/year. Is $14,600 from a W2 and $400 from cash? Anyone who gets a summer job will easily make over $400 in cash. You don't have to report cash to contribute to custodial roth ira?

Bsch4477

Employee

Yes, it is confusing since self employment income is treated differently. Scroll down in that reference you posted to see how self employment income is treated.