A ROTH IRA WILL IGNITE THE ENGINE FOR YOUR KIDS FINANCIAL FREEDOM
USING OTHER PEOPLE’S MONEY TO ROCKET YOUR KIDS TO EARLY FINANCIAL FREEDOM
The third stimulus bill awards $1,400.00 per dependent/child to be included in their parent’s checks. If you can afford to, take a percentage of that money and open a Roth IRA for each child. The GREAT news- Your children will PAY ZERO TAXES regardless of how much that account appreciates.
WHY THAT IS A YUGEEEEE DEAL!
Apple has delivered an average return of 43.5 percent per year for the past ten years. Suppose you or your parents invested $100.00 per month during those ten years in Apple stock and placed it in a ROTH IRA. You would have contributed $12,000.00 principal—but more importantly, have accumulated an investment gain of $190,211.00 with a total account value of $202,211.00. When you reach retirement age (59.5 years), you will owe ZERO dollars in taxes on the $202,211.00 plus further appreciation. But wait there is more – A ROTH allows you to withdraw the $12,000.00 money contributed without penalty or taxes at any age.
COME ON, PEOPLE – THIS IS A YUGEEEEE DEAL!
Let’s learn more.
STIMULUS CHECK INCOME LIMITS
| Qualifies for full $1,400 | Does not qualify for a stimulus check | |
| Single taxpayer | AGI below $75,000 | AGI of $80,000 or above |
| Head of household | AGI below $112,500 | AGI of $120,000 or above |
| Married, filing jointly | AGI below $150,000 | AGI of $160,000 or above |
WHY A ROTH IRA FOR A KID
The ROTH IRA is so good that, per usual, the Members of Congress must not have read the bill! This investment vehicle allows you to grow your account into seven or more profit figures and pay ZERO TAX. ZERO TAXES- that’s just un-American. Our government taxes us after we die! Take advantage of a great deal.
Use the dollars coming from your generous but broke Uncle Sam to kick start legacy wealth.
Let’s get her started.
THE RULES OF ROTH IRAs FOR YOUR KIDS
CAN KIDS OPEN A RETIREMENT ACCOUNT?
Regardless of age, you can contribute to a Roth IRA provided you earned the income. It is acceptable you pay your kids for actual work. For kids, income from jobs such as babysitting, lawn maintenance, routine assigned chores, office work such as filing, mailing, shredding documents, etc., counts as earned income.
Note: Paying an allowance does NOT count as earned income.
Make Ian and Jennifer earn your or others HARD-EARNED MONEY. Strike a deal with your kids to deposit a percentage each month or quarter into their ROTH account.
WHY CHOOSE A ROTH IRA?
Roth IRAs allow for tax-free growth and tax-free withdrawals of the money deposited in the account (not earned interest or equity growth). While the ROTH IRA is designed for retirement savings, tax-free withdrawals of deposited funds can be used for education, home down payments, etc.
Kids have decades ahead to save for retirement. That puts them in a position to take full advantage of a long-term investment strategy and the power of compounding.
One more reason to get Ian and Jennifer started TODAY. Many retired Americans have company pensions. I have four small pensions. All four of my employers canceled the defined pension for new employees. One declared bankruptcy. Hundreds of large companies that once offered pensions, such as General Electric, General Motors, Boeing, and many more, no longer offer pensions. Your kids will need their retirement dollars! The ROTH IRA is a terrific retirement vehicle coupled with any other retirement accounts {401K, IRA, SEP, etc.}
BUT WAIT – ANYONE CAN CONTRIBUTE TO A CHILD’S IRA
In 2021, you can contribute up to $6,000 a year into an IRA or ROTH IRA. Ian and Jennifer can contribute any amount up to the amount of money they earned. It is challenging (like a root canal with zero pain medication) to convince a child to deposit their earned money into a Roth IRA. The good news – it does not have to be their money that goes into the account. As long as your child meets the earned income requirement, you or ANYONE can make the full or part of the contribution on their behalf.
Example: If Ian earns $1500.00 in 2021, maybe he agrees to contribute $750.00, and his Mom contributes another $750.00. Either Ian or Mom can contribute a maximum of $1,500.00
HOW TO GET STARTED WITH A ROTH IRA FOR YOUR KIDS
1. Obtain a social security number for your child.
- Download and complete Form SS-5 (Application for Social Security Number) from the SSA website (www.socialsecurity.gov/online/ss-5.pdf).
Most people apply in person because you need to provide the SSA with originals or certified copies of all identification documents. You can mail in a completed Form SS-5 along with certified identification documents to your local SSA office.
2. Open a new ROTH IRA investment account at an investment firm: Ameritrade, E-Trade; Charles Schwab; Fidelity; Vanguard; etc.
3. Make a deposit, maxed at your child’s annual earnings
4. Invest the money
THE DIRTY WORD – TAXES
In a Roth IRA, money is taxed before it enters the account, but you pay ZERO (My favorite amount when talking about taxes) on ALL future withdrawals. This tax advantage is a reason Roth IRAs are generally encouraged as part of intelligent financial planning.
HOW DO YOU INVEST THE MONEY?
If you do not feel comfortable or competent identifying individual stocks, look at Exchange Traded Funds (ETFs). ETFs invest in a basket of businesses. ETFs have less risk versus holding one or two stocks, which can go up or down based on company-specific factors.
POTENTIAL ETFs INVESTMENT OPTIONS {SEE LAST WEEK’S BLOG}
- VANGUARD S&P 500 ETF (V00); PAST 10 YEARS AVERAGED– NINE PERCENT ANNUAL RETURN ON INVESTMENT
- VANGUARD GROWTH ETF (VUG); PAST !0 YEARS AVERAGED– 11% ANNUAL RETURN ON INVESTMENT
- VANGUARD INFORMATION TECHNOLOGY ETF (VGT); PAST 10 YEARSAVERAGED– 13% RETURN ON INVESTMENT
CONCLUSION – IGNITE THE ENGINE FOR YOUR KIDS ROCKET TO FINANCIAL FREEDOM
In addition to the 2021 stimulus check (which may not be your last), consider depositing gift money into your kids’ ROTH IRA. Explain WHY you are investing in THEIR future versus a new Xbox, so they build a saving and investing habit for decades to come.
Modeling savings early in a child’s life will be life-altering and teach financial literacy.
As always, if you are in good or excellent shape financially, donate. More people than ever need a helping hand.
YOU MIGHT ALSO ENJOY:
TURNING YOUR STIMULUS CHECK INTO MILLIONS $$$$!
https://wealthbuildingpowers.com/2021/03/22/turning-your-stimulus-check-into-financial-freedom/
THE ROTH IRA IS SO GOOD. THE FEDS MADE A MISTAKE!
https://wealthbuildingpowers.com/2020/01/13/the-roth-ira-is-so-good-the-feds-made-a-mistake/
FINANCIAL LITERACY IS JUST NOT THAT COMPLICATED – TRUST ME!
https://wealthbuildingpowers.com/2019/04/01/financial-literacy-is-just-not-that-complicated-trust-me/
FORGET GAMESTOCK – INVEST IN GOATS!
INVESTING IN STOCKS IS COLOR BLIND – WHAT IS STOPPING YOU?
THE NEED FOR EMERGENCY SAVINGS – MORE IMPORTANT TODAY THAN EVER!
KEEP IT SIMPLE STUPID {KISS} – THE S&P 500 ETF INDEX
COMPOUND INTEREST IS THE EASIEST WAY TO DOUBLE OR TRIPLE YOUR MONEY
WARREN BUFFETT UTILIZED COMPOUND INTEREST TO BECOME THE 3RD RICHEST MAN ON THE PLANET!
SO YOU GOT A HUGE TAX REFUND – NOW WHAT?
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ABOUT ME
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger with an N.C. State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I desired to make a difference as a speaker and writer. I was blessed to be coached and mentored by strong women and men in my family and professional life. It is my time to serve and give back.
DISCLAIMER
I started my first business at ~13 years of age (a small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate, and happy to share my finance and investment lessons learned with you.
However, I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog as recommendations for your situation. Please seek your licensed CPA or fiduciary financial advisors for individual financial advice.
I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.
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