How Even the Youngest of Kids Can Earn Income for a Roth IRA

Plus, why there’s little reason to save for college anymore

Ric Edelman: It's Thursday, December 5th. We're going to start off with a question from Robert. He's in Las Vegas.

Robert: “I was told that there is a loophole to avoid paying taxes by hiring children in an S-corp. Do you know if it is legal to create a family management company as a sole proprietorship under my name and then have the management company invoice my S-corp. business and have the family management company pay my children and issue them a W-2 in order to avoid taxes?

My goal is to have my two kids under 18 make $7,000 each so they can contribute that money to a Roth IRA.”

Ric Edelman: Robert, I'm really not sure where you're getting your financial or legal or tax advice here. I think you're getting far more complicated than you really need to in order to accomplish the goal here. We should always begin in the world of financial planning with the goal in mind.

What’s the problem? And, you know, what's the issue we're trying to solve? Too often I have found people get caught up in strategies and opportunities and ideas without stopping to think, what am I trying to accomplish here? And too often I have found professionals guilty of this. They get so caught up in what they can do and the nifty ideas to impress their clients that they forget about the most important thing, which is KISS, right? Keep it simple, stupid.

So, it seems to me based on what you said, your goal is to pay your children so that they can contribute money to a Roth IRA. Let's start there. Okay. Because I really don't think you need to create a family management company, an S-corp or all this nonsense.

Here's the bottom line. Anybody of any age can contribute to an IRA or a Roth IRA. The issue is whether you have earned income. It's not enough that you have taxable income. I mean, simply earning interest on a bond, that's taxable. That doesn't count. Stock dividends, that's taxable income, but it's not earned income. So you have to earn the money from a job. Now, teenagers who mow lawns or babysit, uh, who run errands for people, they certainly can earn money. Many teenagers work in fast food joints and the like, and they earn money. The money they earn is earned income. That money can go into an IRA.

But what about babies? Really, how can a baby earn any income? Well, it's real easy. The baby simply needs to be a model. Babies are all over the place in commercials and print ads. They model clothing, they are there in cereal commercials, and baby food, and baby clothing, and you name it. So, every child can be a model. Now, you're probably saying to yourself, how could my one or two year-old do that?

Well, if you do have a business, let's say you are offering dog walking services or babysitting services, create ads for your business and put your baby in the ad right now, you can pay your baby income. And just like you can pay your teenagers income for mowing the lawn or babysitting or dog walking or you name it, now the kids have earned income, and that earned income can go into an IRA. You can pay them as simply as a 1099. You don't necessarily have to establish a family management company, create an S-corp, or issue W-2s. I mean, oh my goodness, what nonsense. You're going to go through all that craziness just to distribute seven grand to each kid.

Oh, my goodness. If you have a financial advisor who's telling you to go through all that stuff, go get a new series of advisors, legal, tax, and financial, who can show you how to accomplish your goal far simpler and easier. They can also make sure you're doing it correctly. Because you began by saying, do you know if it is legal?

Too often, I find people who are trying to game the system. They're trying to evade taxes. They're trying to cheat in an effort to accomplish their goal. When you're being honest and forthright, you don't have to go through all those gyrations and gymnastics and machinations to pull off what it is you're trying to pull off.

So Robert, good news for you. I'm just not so sure that you're getting really great advice from the financial professionals you're dealing with. So, go find someone who can help you with the idea that I just gave to you.

Yesterday, I beat up colleges again. Today, I'll again tell you not to bother saving a lot of money to pay for college. The latest reasons?

MIT just announced that it is eliminating college tuition for all undergraduate students whose families earn less than $200,000 a year. And if your family earns less than $100,000 a year, not only will tuition be free at MIT, so will room and board and books and even personal expenses. It costs $86,000 a year right now to go to MIT. Starting next year for most students, it's free. There are dozens of schools doing this. This week, the University of Texas is making college free, just like MIT.

This is on top of all of the states that are making college free, and all the companies that are paying for college for their employees. And guess why else college is getting cheaper? Artificial intelligence. Over the past 20 years, private university tuition rose 40%. It rose even more at public universities. These schools are spending more than ever on customized student services, career counseling, extracurricular activities and wellness. AI can handle a lot of that. As a result, as schools turn to AI, they're going to be able to provide services to students at a far more cost-effective way than they've been able to do historically.

Translation, the cost of college will decline. Bottom line is this. You've got a lot of financial challenges, but now, college should not be one of them. As I end my radio and podcasting career after 35 years at the end of this month, I've got a lot of things I'm worried about for you, but paying for college is not one of them.

You'll spend six figures on college for each child only if you choose to. Not because you have to. And a lot of the people who choose to will be making an extremely foolish and unnecessarily expensive decision that will in a great many cases, ruin your life. The lives of your children.

I'm really happy that as I end my radio and podcasting career after 35 years, the challenge of college is also going away.

Because bitcoin has been rising so dramatically ever since the election, now that we know Trump is going to be the next president, the Congress will be fully in Republican control, we know there's going to be a continuing massive amount of activity in crypto. Lots of new legislation, lots of new regulation, a new SEC chair, Trump may even shift this regulatory authority over to the CFTC. I mean, a lot's going to happen in 2025.

What's it all going to mean for the price of bitcoin next year? We're going to give you a deep-dive answer Monday, December 9^th at 2:00pm (EST). Yeah, we're doing a webinar called “What the Election Results Mean for Crypto”. I'll be joined by Steve Kurz, the Global Head of Asset Management at Galaxy. We're going to tell you the right crypto allocation for you and your clients, the investment options to consider, because after all, there's a lot more than just bitcoin and Ethereum, whether you ought to choose the bitcoin ETFs or just buy bitcoin directly, and whether you should choose active or passive strategies, plus all your questions. So, it's Monday, December 9^th at 2:00pm (EST). It's free. You get one CE credit if you're an advisor. You can register at DACFP. com. The link is in the show notes.

And then the very next day on Tuesday, December 10 at 2:00pm (EST), our webinar, “The Retirement Revolution: ETF Solutions for Modern Retirement Planning”. So we're going to give you this additional conversation the day after our crypto chat. We're going to talk about the fact that we're living so much longer than retirees ever did. We've got to evolve how we strategize our money management. Andrew Nelson, Director of Product Strategy at Innovator ETFs, is going to join me to talk about how you can protect and grow your retirement assets, what to expect from the stock and bond markets next year and the new risks for investing for retirement.

That's next Tuesday, December 10 at 2:00pm (EST). It's also free, also one CE credit. You can register for this as well at theTAYF.com. You can get the links to both of these webinars so you can sign up for each one of them. The links are in the show notes.

And it's hard to believe that it's been 35 years on the air. I've done more than 1,500 radio broadcasts over the last three decades, more than 500 podcasts in the last three years alone. And my podcasts are winding down. My last one, as I've told you is December 27th. I'm so glad you've been with me all these years. If you want to stay connected with me, be sure to join my distribution list. Just click on the link in the show notes. I'll make sure you continue to get the latest that I offer on exponential technologies, crypto, Alzheimer's, longevity, investing, all the topics that matter most to us all. Thank you for being with me all these years. I'm looking forward to many more with you. Please subscribe today so we can stay connected.

If you like what you're hearing, be sure to follow and subscribe to the show, wherever you get your podcasts, Apple, Spotify, YouTube, and remember leave a review on Apple podcasts. I read them all. Never miss an episode of The Truth About Your Future. Follow and subscribe on your favorite podcast app.

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Links from today’s show:  

12/9 Webinar - What the Election Results Mean for Crypto: https://dacfp.com/events/what-the-election-results-mean-for-crypto

12/10 Webinar - The Retirement Revolution: ETF Solutions for Modern Retirement Planning: https://www.thetayf.com/pages/the-retirement-revolution-etf-solutions-for-modern-retirement-planning

2/24-2/26 Wealth Management Convergence-2025 https://www.thetayf.com/pages/convergence-2025

11/13 Webinar Replay - An Innovative Way to Generate Income in a World of Declining Rates: https://www.thetayf.com/pages/november-13-2024-an-innovative-way-to-generate-income

10/9 Webinar Replay - Crypto for RIAs: Yield, Staking, Lending and Custody. What’s beyond the ETFs? https://dacfp.com/events/crypto-for-rias-yield-staking-lending-and-custody-whats-beyond-the-etfs/

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