Erickson Financial Solutions Blog
1-minute video: Is Tax Planning missing in your Retirement Planning?
Roth IRAs are for minors too.
We all know that having money grow without being taxed is great. In part, that is why we contribute to retirement plans at work and our IRAs.
As an adult, you may be ineligible for the powerful ROTH IRA if you earn too much money. But a minor child or college-aged child working a summer job or through the year can contribute to a ROTH IRA.
They can only contribute as much as they earn – gifts, investment or interest income does not count. The most they can contribute is currently limited to $5,500.
Imagine how much they would have by age 65 if a 17 year old contributed $2,000 a year each year to the age of 22 when the child the finishes college. If that money earned a modest return of 8%, with six $2,000 payments and no other contributions, the account will exceed $400,000 by age 65 AND be tax free when withdrawn.
Sounds fantastic doesn’t it. But how do you get them to deposit the money. Well, how about a match program. For every dollar they put in, you gift them money – kind of like what a tax deduction or company match does for you when you contribute to a standard retirement plan.
You surely can dream of your own creative ways to entice them to make the contribution. You never know unless you raise the issue with them.