ASK KIM
Keep a Job Journal for Child's IRA

I want to open up a Roth IRA for my child. What documentation would I need to provide to the IRS to prove he has earned income?

Unlike traditional IRA contributions, which are shown on tax returns to claim the deduction, Roth contributions are not reported to the IRS.

But you do need to keep records for your own files proving that your child did have earned income, in case you're audited in the future.

Even if he's just doing occasional odd jobs, keep track of the date of each job, the person who employed him and how much he earned. Remember, allowance payments for chores around the house don't count.

Opening a Roth IRA for your child is a great idea. You'll give him a head start on a tax-free retirement-savings fund, and he'll be able to withdraw the contributions at any time and for any reason without a penalty.

But, as you point out, children can contribute only up to the amount of their earned income for the year (with a maximum of $4,000 in 2005). As long as they have the earned income, you can give them the money to make their contribution.

Also, keep in mind that your child does not need to file an income-tax return if he earned less than $4,850 working or $250 from investments in 2004.

He may need to pay social security taxes, however, if he was self-employed and earn $400 or more in a job other than babysitting or newspaper delivery. For more details about the requirements, see IRS Publication 929, Tax Rules for Children and Dependents.

Also, some firms worry about the legal issues involved when dealing with minors and don't like opening Roth IRAs for children. Some kid-friendly brokers and funds include: Charles Schwab, T.D. Waterhouse, Merrill Lynch, T. Rowe Price, American Century and Vanguard (although some require a parent's signature).