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I'm a college student doing some part time work (for my school), and my dad very generously said that he would match my contributions to my Roth IRA if I maxed it out - ie. I pay in 3000 and he pays in 3000. However, a quick google search says that you can't contribute more than you earned, which is a problem because in 2019 I only made 4500 dollars. I was wondering if:

a. The IRS would actually notice- since both 4500 and 6000 dollars are less than the minimum filing requirement I don't think my income would even end up on any tax returns either way.

or

b. Can my dad just decide to 'pay' me 1500 dollars for the work I do around the house (the usual babysitting, yardwork etc.) so that I reach the required income.

  • This is really a question of (1) a side job paid for by your family and (2) what you should do with your own money. If it's a legitimate job the do whatever you want. It's your money. – acpilot May 27 '20 at 1:17
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    I guess I know I CAN do it, I'm just trying to make sure it's not going to end with me getting my fingernails pulled off by the IRS. This is my first time filing taxes, and I haven't been able to find answers online on how to treat work done by a child payed for in cash by a parent. Since there a rules describing gifts of up to 15,000$ , and any gift could easily be rephrased as 'payment for doing house-chores', it seems slightly sketchy to count it as income towards the 6000 requirement. – Justin Sanders May 27 '20 at 2:10
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    Sorry if it's a stupid question but when it comes to filing taxes anything that's a "Hey this is a great way to work around that rule" feels like it might well be illegal. – Justin Sanders May 27 '20 at 2:23
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    You two would have to be careful about the "pay" me 1500 dollars for the work I do around the house, in that it has to be reasonable compensation (the quotes suggest to me it may not be). See money.stackexchange.com/q/93986/36669 – yoozer8 May 27 '20 at 2:32
  • @yoozer It would probably work out to be fair compensation hourly (ie. if you got someone else to do work), but also maybe not because at the time it was done with no expectation of financial recompense. However it's a moot point because paying social security and healthcare taxes, as the reference you provided says is required, would not be worth the potential benefit. Thanks! – Justin Sanders May 27 '20 at 2:56
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The IRS would actually notice- since both 4500 and 6000 dollars are less than the minimum filing requirement I don't think my income would even end up on any tax returns either way.

Reporting incorrect information would be tax fraud. You would have an excess contribution which would then require you to either remove it before tax day, or next year face a penalty. The Roth contribution is reported by the custodian on IRS form 5498

Note that the IRS still has some information on your income. You should have one or more W-2 from from your employers. The IRS may determine that you didn't have enough income, and ask fro proof.

Can my dad just decide to 'pay' me 1500 dollars for the work I do around the house (the usual babysitting, yardwork etc.) so that I reach the required income.

That seems like a lot of work to try and cheat the tax man. It may open other issues such as withholding social security and taxes.

  • Thanks for the input, that makes sense. I wasn't trying to cheat the system (promise!), I just wanted to make sure there wasn't a simple work around before I go back to my dad and turn down a very kind offer because it breaks the contribution rules. – Justin Sanders May 27 '20 at 2:49
  • It's likely that in a few years, after you graduate and (hopefully) get a full-time job, that you'll be in a position where your income is high enough to allow you to contribute at least $6000, but at the same time you can't afford to max out your contribution on your salary alone. At that point, you can use your father's gift. You aren't losing that much by not investing in the IRA immediately. – chepner May 27 '20 at 18:55

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