re: My 20 year old son will be bringing in 40-50k per month for the foreseeable future.

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Don’t make sense. Is this passive or active income? His payments should be distributions which are not on a 1099 but on a K-1. I highly recommend him setting up a S corp for his ownership and running his new found expenses through it to reduce taxable income. Get on a quarterly payment plan.

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He is actively contributing to the the further development and marketing of the game but the income is passive based on contributions from players.

I am not 100% sure how Roblox is paying him out. I know he collects in game Roblox dollars that has a conversion to US dollar amount. At the end of the month, he can request his payout. For example, 5 days into the is month, he already has 10k of converted US dollars in his Roblox account. He is on track to pull in 60k this month. I am assuming Roblox will have to send him a tax form at the end of the year. It may not be 1099 but I am not familiar with all the other employment arrangements other than W2 and 1099, as those are the two types of income I have.

The guys within the group determined, based on individual contributions to the game, the amount of payout to each contributor. I know they are working with a lawyer to have some sort of contractual agreements drawn up between them all.

Just from doing a little research using Grok, I think this is the form he will get at the end of the year IRS Form 1099-NEC

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He’s been a gaming kid ever since he’s been able to play video games. It’s become a passion of his. He’s joined with a number of other guys to design a game for Roblox.

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that’s a hellova way for him to come out the closet to you

OP, please seek the advice of professionals here. Lots of things to consider, but some he may not be eligible for depending on how things are structured with the business/how Roblox pays him.

S corp could offer tax savings but only if certain qualifications are met.

HSA contributions can only work if the health insurance plan fits certain guidelines.

Got it, that makes more sense.

There is a group called KKOS Lawyers. IMO they are the best tax lawyers we’ve worked with because they have experience in every state vs a local tax attorney that might have excellent state experience but not broad industry exposure. They can also give guidance on best entity setup, retirement accounts, and they will likely line you up with a CPA that has experience in this space.

Create LLC, get an EIN in that name. Get them to 1099 the EIN. There are no 1099 employees, if you get a 1099, you are a business. Businesses have bank accounts, have them deposit into the business account opened with the EIN.

Ask about S Corp election fir that LLC, or perhaps even create a partnership with him in the LLC. You would prefer this income be on a business return.

Keep track of any and all expenses that relate to that income (games, computers, the invoice for the advice you are getting, the mileage it takes to drive there, etc). What is ordinary and necessary for game development? Those are all typically valid deductions. Keep receipts, keep logs and notes. Document. Consider a Comany credit card to isolate

You may not be able to claim him as a dependent anymore (this is getting more in the weeds). The business could have an accountable plan to reimburse certain costs you might still pay like health insurance and maybe even educational costs so they can be a business deduction but not taxable to the employee/ owner.

Consider buying a small house, renting to his friends, but keep the largest room as a home office used exclusively for the business and deduct it or reimburse the cost under the accountable plan mentioned above.

SEP IRAs are not the best vehicle these days, they are basically limited to 25% of the amount you pay in employment taxes, look at a SEP 401k or solo 401k.

Your financial professional will appreciate you having done your research and coming with ideas. Just remember if you want to be tax efficient, most of the work is in your/your son. A pro can only help guide you and help set things up, they can’t know the rules for you.

Good luck, and congrats to your kid, I hope he can springboard this opportunity into financial independence for life.

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I am not familiar with all the other employment arrangements other than W2 and 1099, as those are the two types of income I have.

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You should be taking deductions to then

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I think this is the form he will get at the end of the year IRS Form 1099-NEC

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They should be able to issue to an EIN. Submit a W9 with that info. Show the IRS you tried to get them to report correctly.

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At that income level I would not go Roth. That money is being taxed at 35% today. Solid chance it will be taxed less down the line. Sure, by going traditional you will have to pay taxes when it comes out, but to me, that's not enough penalty to have less money being invested for 40+ years.

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Also, he has a good chance of being in a lower bracket when he's drawing it down.

I would also make sure some of the money goes into stocks and short term bonds/CDs, so he can tap the funds without penalty when he buys a house.

glad i went to law school and have been grinding in out for 20 plus years. think I'll go jump off a bridge now. congrats to your son.

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The reality is he's only a 5% owner. And these types of income streams can be a flash in the pan. Could be $0 in six months. Or a whole other host of issues can happen.

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The only thing we know for sure is he won’t be as cool or successful as OT Incel TheOcean, new money dork

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Roth has income limits.

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Roth IRA, yes. Roth 401k, no.