starter IRA for my son?

[albireo13]

My 26 yo son is thinking of starting an IRA for himself. I've been encouraging saving. : )
He doesn't have a big income right now and it would be good to get him started with long term saving. I was thinking of a Vanguard Index fund.
Any good suggestions?

Also .... Roth or traditional IRA?
I was thinking a Roth may be good since he is in a low tax bracket right now and long term growth in the Roth would be untaxed.

Thx,
Rob

 

[exnavynuke]

Sounds good to me (Roth IRA in a low cost, total market index fund).

 

[OldShooter]

Yes. Vanguard has a total world equity fund based on the ACWI (All Country World Index). That's the only equity fund he'll ever need and an equity fund is all he needs right now.

 

[fh2000]

I funded my 2 young adult children's Roth IRA for the last couple of years. I use Vanguard Target date fund 2055 for each. I told them not to withdraw until year 2055 when they will be around 60.

 

[4legsgood]

I've been funding a Roth IRA for my daughter since her first job in high school (she's 20 now). I stick with an S&P 500 etf and AMZN and GOOGL. She isn't interested in it now which is good as far as I'm concerned since I want her to focus on college. Some day I think she'll appreciate it, and I hope it will be a goodly sum by then.

I think it's a very good thing to do for your kid.

 

[CaliKid]

Exactly what the money is invested in is immaterial as it's all a crapshoot longterm. The key is that the IRA (yes do Roth) is starting. Hopefully he keeps it up each year.

 

[pb4uski]

One thing to check out is the retirement savers credit. DS does tIRA contributions to reduce his AGI to where he gets the maximum credit of 50 cents for each $1 saved, and then Roth contributions to maximize the credit to be equal to his taxes before the credit.


As a result, the last 3 years he has received a refund for 100% of his federal income taxes withheld.. for essentially moving money from one pocket (taxable funds) to another (tIRA and Roth).


Or another approach if his income is too high for the retirement savers credit might be to offer to match each $1 that he contributes... if he contributes $5,000 to his Roth then you give him $2,500 so his net contribution is only $2,500.

 

[kgtest]

a cpl good suggestions. Matching is a great incentive to save more and LBYM if they latch onto it.

My wife had a RothIRA and a brokerage account when we married. I finally 6 years later surpassed her investments, and I've always earned 2x what she has, so you truly cannot appreciate the value of early contributions until you see it right in front of you.

I plan on putting my kids on the payroll so they can start contributing as soon as I have enough liquid assets to do so.

Vanguard rep actually keyed me into that idea.

 

[retired1]

I funded my 2 young adult children's Roth IRA for the last couple of years. I use Vanguard Target date fund 2055 for each. I told them not to withdraw until year 2055 when they will be around 60.

I have teens who are working Part time.
Does the child need to have earned income ? Can you put in more than the child's earned income ?

 

[kgtest]

You wouldn't want them to earn more than the kiddie tax IMHO. But I guess they get to learn a valuable lesson if they do.

That means all unearned income in excess of $2,100 is taxed at the child's parent's tax rate. There's an AMT for the kiddie tax, too. For 2018, the AMT exemption amount for the kiddie tax may not exceed the sum of the child's earned income plus $7,650.Oct 19, 2017

From Kitces, posted on BH:

For children with more modest levels of income, the new Kiddie Tax rules could actually result in a tax saving, as the first $2,550 of unearned income (over the initial $2,100 threshold) is taxed at just 10%, and the next $6,600 of income is taxed at only 24%


From rothira.com The most important thing to know about opening a Roth IRA for a child is that they must have earned money during that tax year. You (or the child) can contribute as much as they made, up to the annual Roth IRA limit (currently $5,500)

 

[kgtest]

The most important thing to know about opening a Roth IRA for a child is that they must have earned money during that tax year. You (or the child) can contribute as much as they made, up to the annual Roth IRA limit (currently $5,500)

 

[NgineER]

I plan on putting my kids on the payroll so they can start contributing as soon as I have enough liquid assets to do so.



Vanguard rep actually keyed me into that idea.

What payroll are you talking about? Do you have your own business?

 

[kgtest]

What payroll are you talking about? Do you have your own business?

Yes, I have three. And anxiously awaiting Pub15

 

[NgineER]

Would you have to pay employment taxes on their earnings too?

 

[kgtest]

Would you have to pay employment taxes on their earnings too?

Not that I am aware, not for kids. I haven't done this yet, but do plan to look into it.

Per IRS

Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Refer to the "Covered services of a child" section below. Payments for the services of a child under age 21 who works for his or her parent in a trade or business are not subject to Federal Unemployment Tax Act (FUTA) tax. Payment for the services of a child are subject to income tax withholding, regardless of age.

 

[RE2Boys]

Going into the fourth year of helping my college age sons with Roth IRAs. They never made enough for the Traditional IRA to be of any benefit. I match whatever they contribute, though the max total must not exceed their earned income. One has taken an interest in stocks so has mostly equities. The other is in broad mutual fund. All Vanguard.


Part of the reason was to get them started thinking of savings, part of the reason was to syphon off some of their earnings so they had to develop money management skilss and not have too much to "blow. " They are responsible for their own daily entertainment expenses and wants, we take care of clothing (unless a want and not a need), college tuition, room, board, books, and provided them each a 7 year old car, maintenance, and insurance. Gas is partially on them (we give gift cards for them to get back and forth to school) but any other is their responsibility. I've eased up on the monthly cell phone bill as it felt I was counting the pennies, though each had to buy their own phone.
I have to say, I can't remember the last time they asked for money from me. They know the rules and it works out well.

 

[Enuff2Eat]

a cpl good suggestions. Matching is a great incentive to save more and LBYM if they latch onto it.

My wife had a RothIRA and a brokerage account when we married. I finally 6 years later surpassed her investments, and I've always earned 2x what she has, so you truly cannot appreciate the value of early contributions until you see it right in front of you.

I plan on putting my kids on the payroll so they can start contributing as soon as I have enough liquid assets to do so.

Vanguard rep actually keyed me into that idea.

i have a couple rental houses and would like to pay my kids when they help me out. Can they put that money in Roth and how I and He file IRS?

do i give him a 1099 or write him a check and he keep record of it? please advice ... anyone.

thank you

 

[targatom2019]

I funded my 2 young adult children's Roth IRA for the last couple of years. I use Vanguard Target date fund 2055 for each. I told them not to withdraw until year 2055 when they will be around 60.

Did you open an account with Vanguard or with other firm then buy Vanguard target date fund ? I am ready to get my daughter to open a ROTH IRA.

Does VG charge you for each trade like TD Admeritrade ?

 

[Texas Proud]

I have read where a few people say they fund their kids savings... I am against just doing that in principal.... it does not teach them a lesson on savings...

I match what my kid puts into his ROTH... hopefully like he will get when he starts working... it is teaching him to save on his own and also not to pass up free money...

However, he has not said anything to me about making a contribution for last year even though I reminded him of the match during Thanksgiving break... I am still hopeful....

 

[4legsgood]

I have read where a few people say they fund their kids savings... I am against just doing that in principal.... it does not teach them a lesson on savings...

I agree with this in principle, but to get a young person excited about a retirement account is pretty hard and it's such a leg up to get momentum going in an investment account at a young age...I fund.

 

[stephenson]

Great comments - except for the “crapshoot” comment. Investing in the equity and bond markets is most definitely NOT a crapshoot.

 

[targatom2019]

I have read where a few people say they fund their kids savings... I am against just doing that in principal.... it does not teach them a lesson on savings...

I match what my kid puts into his ROTH... hopefully like he will get when he starts working... it is teaching him to save on his own and also not to pass up free money...

However, he has not said anything to me about making a contribution for last year even though I reminded him of the match during Thanksgiving break... I am still hopeful....

I just want to jump start the process then she will contribute her self. Very hard to talk about retirement to a 22 year old about retirement.

 

[Texas Proud]

I just want to jump start the process then she will contribute her self. Very hard to talk about retirement to a 22 year old about retirement.

My son is 19 and in college... he is really smart and has already seen the increase in his contributions from a year ago...


I can remember my dad teaching us when I was as young as 5... we would put the money in a savings account and he would match... we are talking just a few dollars here, but it made an impression when you went and they would update your savings book....

If you are able to get through to them when they are young the better... I have been reading that the new recommendation for saving today is 25%... when I was young it was only 10%...


Who knows... come April I might throw a bit of money into the account just for grins, but he would get more if he would pony up a bit...