Did your kids work over the summer?
If so, you are able to open up a Custodial ROTH IRA for them!
$1,000 invested today could be more than $100,000 when your child reaches retirement.
ROTHs are ideal wealth accumulating vehicles as they grow tax free and if they don’t tap into it until they are beyond 59.5 years of age, the withdrawals are entirely tax free. Some parents and teens may feel a bit uncomfortable tying up their funds for decades, which is totally understandable. But the great thing about ROTHs is that you can always withdrawal your contributions penalty free and use $10,000 for a first-time home purchase penalty and tax-free.
A client of mine, a small business owner, has both of her kids on the payroll. They do odd jobs, like shredding paper, taking out the trash, etc. She pays them up to the standard deduction ($13,850 for 2023), so there’s no additional tax burden. She then determines how much should be spending money and how much to put in the ROTH IRA, every year since they turned 13. Her 17 year old now has a little over $20,000.
Should this money continue to grow, undisturbed for another 43 years, it is likely to amount to over a million. Powerful, yes?
Not only will you be setting your kids up for a nice retirement, but this can also be a valuable way you can begin teaching them about the financial world.