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How to Take Advantage of The Child IRA Under Current Laws

How to Take Advantage of The Child IRA Under Current Laws
July 13
00:03 2016

(This is the second in a series of three installments.)

Now that you know everything you need to know about the concept of The Child IRA (see “Everything You Always Wanted to Know About The Child IRA,” FiduciaryNews.com, July 12, 2016), let’s learn what it takes to benefit from The Child IRA. Remember, the one significant drawback of The Child IRA is that, under current laws, it can’t be utilized unless the child has earned income. Since the full value of The Child IRA assumes IRA contributions begin the first year a child is born, it requires that newborn to have a job. There aren’t many jobs newborns can take. But there are some. Let’s explore them.

The Best Way For Newborns to Begin Using The Child IRA

Newborn babies have limited skills. They can breathe, they can eat, they can… well you can figure out the rest. There are plenty of things they can’t do. They can’t answer the telephone. They can’t file alphabetically. They haven’t even mastered simple tools like Microsoft Office, let alone advanced tools like Adobe’s Creative Cloud. In fact, they’re only capable of doing one thing: existing.

The world offers precious few jobs that require only existence, but that newborn baby will have to find those jobs and then convince an employer to hire him (i.e., that newborn baby) in order to earn the necessary income to start a Child IRA. What kinds of jobs require one to merely sit there and do nothing? Pretty much only one: modeling. Think of all those (practically) newborn babies acting in all those diaper commercials, insurance commercials, and just about any other type of advertising (both still and video). Those babies don’t work for free, either. They all get paid. For them, The Child IRA is more than just a philosophical idea, it’s a practical tool.

For many, landing a job as a modeling professional seems far-fetched, if not impossible. Certainly, they think, such positions are available only to those with connections, not for the common folk. Just like any other job, it’s not as hard to get if you’re willing to do what’s necessary. “Breaking into the business is not difficult at all,” says Kent Friel, Executive Director at the The Mary Therese Friel Modeling Agency in Mendon, New York. “A parent interested in getting their child into modeling should research potential agencies and look for a reputable company with a proven track record to get involved with. An agency like ours will help guide you through the process and help you learn the business.

What precisely does it mean to be a model and what are the kinds of jobs one can expect when modeling? “The type of modeling work we are discussing here is commercial print work and television commercials,” says Friel. “Typically, models in these types of bookings are seen in advertising images placed in print publications, on television, and in electronic media. There is other modeling work available like fashion/runway and television/film acting. They all have different payment rates associated with them.”

How Much Can a Child Model Expect to Earn?

The first step is landing the gig. Next, the child must earn enough to start and maintain annual contributions in The Child IRA. Recall our hurdle is low because The Child IRA is predicated on contributing only $1,000 a year (or perhaps more the first few years if the child doesn’t start working as a newborn infant). Is it reasonable to expect the child to earn the minimum necessary to continually fund The Child IRA? Friel says, “The question is difficult to answer because the range of compensation for child models is varied. Every booking is different, every client is different and every model is different. Like any job, compensation rates are tied to qualifications, in many cases. The more training and experience a model has, the higher the rate they can command on a booking. Additionally, compensation for a modeling booking tends to increase based on the geographical area that an ad will be shown in (local, regional, national, etc.). This factor is usually in line with the size of the company producing the ad.”

Getting the actual job is only the first hurdle. The next involves earning enough money to cover the minimum annual contribution of The Child IRA. Friel divides the modeling market into three geographic tiers. “In a third tier market like Rochester, New York,” says Friel, “a child can earn approximately $50 – $150 per hour, or $500 to $1000 per day. Most of the work is local and regional in scale. Because the child model is working in their hometown, parents have the added advantage of preserving the child’s normal schedule and do not have to travel for auditions and bookings.” This translates into working between seven and twenty hours a year in smaller markets to generate the minimum annual contribution of $1,000.

Larger markets offer higher paydays, making it easier not only to fund the minimum, but to fund the full maximum allowable annual contribution. This may be an important factor for children who haven’t started modeling as newborns to make catch-up contributions to The Child IRA. “Second their markets like Chicago, Philadelphia and Miami offer much regional and national work for models,” says Friel. “This work pays a higher rate for the job than the third tier markets. Top tier markets like New York City and Los Angeles offer national bookings for network TV and pay the best rates. Models receive a standard appearance fee for the shoot and a residual fee based on the amount of air time the commercial receives. These commercials would be for national brands. Sustaining ongoing work of this nature requires joining a union (SAG/AFTRA) and being able to either travel to these cities on a regular basis, or relocate.”

Can a Child Sustain a Modeling Career From Infancy Through Early Adulthood?

In order to take full advantage of The Child IRA, the child will need to contribute $1,000 a year for nineteen years (from ages 0 through age 18). Is it reasonable to expect a child’s modeling career to last that long? After all, someone who’s cute as a three-year old might not make the cut once the body starts changing during adolescence. “At our agency, we represent professional models from infancy through the senior years,” says Friel. “We have been in business for 30 years and have models still working with us today who started their modeling careers with us when they were children. Theoretically, a person could begin modeling as a newborn and continue through all of their growing years and into their adult years.”

But it’s more than natural looks and talent that keep child models employed. Friel says, “This is a job that you have to possess a drive and determination to be involved in for the long term. It looks easy to observers, because it is supposed to appear that way. The reality is that much training, preparation and auditioning happens before any work is booked. The work is truly fun and rewarding.”

More important, a successful child modeling career requires a support group well beyond the child’s ability to control and manage. “To be successful,” says Friel, “child models need representation, professional photos, and training. They also need a parent or guardian who has the time to accompany the child to all of their modeling activities.”

In short, a child’s modeling career may last only so long for any number of reasons. Friel says, “Modeling careers for children end because one or more of these ingredients is missing. For example, an agency will represent a model for as long as they deem that the model is marketable, which means that the model has the physical attributes and professional acumen that the agency desires. If a model doesn’t have photos that accurately show their current look, it is impossible for an agent to promote them for opportunities. As the child model ages, if they don’t seek training opportunities, they won’t develop the necessary skill base they need for the business.”

While the actual working years may be limited, the earning years can be extended if the jobs entail residuals. Depending on the nature of the work, these residuals can last for years, allowing the child to continue to contribute to The Child IRA long after the working days have finished.

Of course, there’s another way to look at this. Suppose (as is often the case), a newborn baby has “that perfect look” for one-time ad placements and earns several thousand dollars (or at least $5,500 a year). It’s not unusual for a newborn’s looks and demeanor to change as to make them unemployable (can anyone say “terrible twos”?). Let’s take the case where the newborn is only actively working for the first two years and does not make any residuals. If the newborn contributes the maximum ($5,500 a year) to The Child IRA for those two years, the amount The Child IRA will grow to when that child reaches age 70 will be very nearly the same (actually, a tad bit more) compared to a Child IRA that is funded at $1,000 a year from age 0 through age 18. So, just because a modeling career is short doesn’t mean the child can’t experience the full benefits of The Child IRA.

Special Case: The Parents Own a Business

The modeling profession is highly competitive. It requires a lot of dedication and hard work to sustain a career. But there may be a way to cut corners. Parents who own businesses and actively advertise represent a special situation. In this situation, maintaining a steady stream of child modeling work may demand less rigor. “A parent of a child model can provide regular and predictable bookings for the model in the advertising that they produce for their own company,” says Friel. “This situation also provides control over the child’s modeling career as well, which is completely absent when the model is working for other companies.”

Still, it’s important for the parents to continue to do things by the book. This includes not only offering fair compensation that is justified by the amount of work completed, but also to stay within the confines of any applicable child labor laws. For example, Friel says, “In New York State it is important to run bookings like this through a professional agency, like ours, with the proper permits to maintain compliance with the Department of Labor Child Performer laws.”

Are You Interested in Utilizing The Child IRA This Way?

Current or prospective parents and grandparents may be interested in looking into child modeling as a way for their children and grandchildren to generate the earnings necessary to take advantage of The Child IRA. How would they go about doing this? “Take the time to do your own research to find a reputable agency that you can trust,” says Friel. “Expect to pay for your own expenses (photos, training, etc.). There is a lot of information available that says models do not need to pay for anything. The reality is that if you don’t pay for them on your own, the agency will assign the cost to your ‘book’ and you will end up paying for these expenses, plus interest, from your bookings, or at the end of your contract if the expenses were not earned.”

Next: Who is Using The Child IRA Right Now

Are you interested in discovering more about issues confronting 401k fiduciaries? If you buy Mr. Carosa’s book 401(k) Fiduciary Solutions, you’ll have at your fingertips a valuable reference covering the wide spectrum of How-To’s (including information on the new wave of plan designs) every 401k plan sponsor and service provider wants and needs to know. Alternatively, would you like to help plan participants create better savings strategies? You can buy Mr. Carosa’s latest book Hey! What’s My Number? How to Improve the Odds You Will Retire in Comfort right now at your favorite on-line or neighborhood book store.

Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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