Roth IRA for kids

[semtex]

There is no age requirement for Roth IRA contribution. So how about set up a Roth IRA for kids. Instread of leaving a sum lump to kids, set up a Roth and transfer the ownership gradually.

comments?

 

[Martha]

The kid will have to have income from employment equal to the amount you want to contribute to the Roth. If you use the search function, you will see that some of our posters have tried to work on creative ways to employ their children in order to fund a Roth. Gets sticky regarding taxes and social security. It is easier if you have a corporation that can employ your child.

Nords spent a lot of time thinking these issues through.

 

[semtex]

In fact, my idea is simple. When kids have taxable income, offer them $1 match to whatever
they contribute.

 

[semtex]

Sorry, I mean 1 to 1 match. I wish they would accept it.

 

[Martha]

Yeah, if they have income from employment, then go at it. A match sounds great. (Of course they could take the money out later, behind your back).

 

[Peaceful_Warrior]

If you want to keep control of it, then a 509 would be better.

For the Roth, as others have said, your children will need earned income equal to or greater than the amount of the contribution.

If you're dead serious about this, start a home-based business as a corporation, and then start funneling lots of your expenses into it (not just funding a Roth IRA).

There is no age requirement for Roth IRA contribution. So how about set up a Roth IRA for kids. Instread of leaving a sum lump to kids, set up a Roth and transfer the ownership gradually.

comments?

 

[TromboneAl]

My decision on this is that saving for your kid's retirement is going too far. If you've saved for your retirement properly, they'll probably inherit a good chunk from you. It's one thing to help them with college, but to be, in effect, giving them money when they are 60 years old (in 2050) is a bit intrusive. Let them take responsibility for that.

I admit my thoughts may be selfishly motivated.

 

[wabmester]

giving them money when they are 60 years old (in 2050) is a bit intrusive.

What kid has the discipline to leave free money alone till they're 60? I would have cashed the thing out as soon as I hit 18. Or at least changed my asset allocation to 100% beever cheese futures.

 

[yakers]

I just set up a Roth IRA for my 17 year old son. $1K in VG Star. He worked at Subway after school so he has the income. It looks like it will be a good education for him to actually be aware there is such a thing as a mutual fund and an IRA. Yes, he could pull the money out but I would give it to him if he needs it anyway. I just think this is a good investment in his financial education/consciousness.

 

[rockyj]

I just think this is a good investment in his financial education/consciousness.

I agree. Max of $4K Roth deposits (1/2 of that if doing the "match" game) is a relatively inexpensive price to help get kids started with an awareness of long term saving and the value of keeping the tax man at bay. I don't find it at all "intrusive" (sorry Al) to help get them started on the right foot with a long-term mindset, particularly when delaying that start can be so counterproductive in the long run. We've all seen those compounding illustrations that show the value of starting early, as in "Mary saved $2k per year starting when she was twenty and stopped at 30, John (the poor sap) waited until thirty to start and continued forever and never caught up" (or something along those lines). If anything, with a good attitude and presentation, the money is less likely to be squandered along the way than other forms of gifting may be. Of course, your situation and mileage may vary, and it may be hard (or you may have to wait awhile) to make the case for the advantages of long-term investing should you start this at the beginning of a bear market.

 

[RedHawk]

My parents sort of funded my Roth. My parents had a plan where I would get xx dollars a year for college no matter what type of scholarships I received or the cost of college. Since I had extra money due to scholarships and working during school and over the summer, I started to fund a Roth.

 

[Nords]

My decision on this is that saving for your kid's retirement is going too far. If you've saved for your retirement properly, they'll probably inherit a good chunk from you. It's one thing to help them with college, but to be, in effect, giving them money when they are 60 years old (in 2050) is a bit intrusive. Let them take responsibility for that.
I admit my thoughts may be selfishly motivated.

Mine are selfish too. I'd rather exploit the government's loopholes to allow our kid to invest tax-free for five or six decades of compounding before she needs to tap the money. (If she ever needs to tap it at all.) That type of compounding math is just too important a decision to be left in the hands of teenagers.

Considering that our kid may not inherit until she's in her 70s or even 80s, a situation similar to what spouse & I expect to experience, I don't worry about her inheritance. In fact her Roth may be compounding faster than her inheritance, especially since we'll be finding creative ways to spend the latter with a clear conscience.

Here's another advantage of a Roth. When the college graduate eventually goes house-hunting and calls about a parental loan, we can say "Remember that Roth IRA we started for you when you were 14 years old? Read up on how to tap it for a down payment. Whoa, surf's up, gotta go, later dude!"

Nords spent a lot of time thinking these issues through.

http://early-retirement.org/forums/index.php?topic=2510.0

The IRS isn't so bad... the state tax laws are the problem.