Roth IRAs for Kids
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Anonymous
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Is everyone setting up Roth IRAs for their kids now? I’m GenX and after paying for private schools and in the midst of paying tuition for private college (full pay), I’m surprised people are now also starting retirement accounts for their kids.
If you do this, how much are you putting in their accounts monthly or yearly? |
Anonymous
| an amount equal to kid's w-2 income |
Anonymous
| My kids are teens, they fund their own ROTHs from summer jobs. |
Anonymous
+1 This is the rule |
Anonymous
Op here. Explain to me like I’m 2. So each year you put in the amount they earn from summer jobs, etc. into the Roth? How long do you do this for? |
Anonymous
| My kids are too young, but as soon as they have income I’ll start. My parents did this for me, even in early years after college and that investment is worth so much now. |
Anonymous
| Only if they have verifiable income. Typically the only ones doing it for their young kids are people who have their own businesses. But yeah if you have a working teen, why not set it up if they don't the money right away |
Anonymous
Technicality the kids are starting their own retirement accounts with the money they earned |
Anonymous
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I don’t do it unless the kid wants it (we talked about it). They own mostly growth stocks in their investment account, so if they need the money before 60 they just pay capital gains vs any penalties and ordinary taxes on earnings.
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Anonymous
They could have done this for you in just a taxable account as well and you don’t even need any income. |
Anonymous
I think they mean that you can only contribute as much as they earn on their w-2 income (or the annual max but kids usually don't hit that). It's not something you *have* to do, but if you have the money it's a way to kick start their savings. To me, the idea of teaching them about retirement savings and how money compounds and grows is more important than a $1500 contribution when they are 19. It's not nothing, but it's also won't affect their retirement lifestyle. Personally, if I can I plan on doing this for my kids until they get their first full time job. Then they can save on their own. |
Anonymous
| We wanted to teach them the value and importance of saving and compounded interest. Once they started W2 jobs at 15 (lifeguards, unfortunately babysitting didnt count), we offered to match however much they put in. |
Anonymous
OP here. A cautionary note about taking this approach. We put money into a regular brokerage account as part of a money lesson for our kids and they received money from their grandparents to put in the account, too. Now that they are in college, they’re looking at that money as something to withdraw for new cars (they have hand-me down cars at their disposal), trips, and other short-term spending opportunities. If the money was in a retirement account, it would have saved us a few arguments. |
Anonymous
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I'm an immigrant, so pardon my English. I never got a career going as my papers took forever. I have to find a different way to catch up and hep my kids.
They are fairly bright and private school was never needed, wanted, or considered. I'm have Roths it for my 11- and 18- year old. I see so much more value in Roths than in private school, but it is very child and family dependent. My older one got 30 credits transferred already. He will start community college, and hopefully transfer to VA/UVA/GM getting in-state as I won't declare him on my taxes anymore. He should also get a quite a big tax refund if we don't touch 529 this year. Younger one inherited a very small Roth, but I will turn it into 6-digits by the time he is 18 as selling and buying stocks inside of Roth is allowed and tax free. My 18-year old will get a job now and we will open his Roth IRA with the earnings. Robinhood even has a 3% match. We will continued to fund Roths as long as he is eligible and works. I will try to funnel money from my investment account into all our Roths bit by bit. I file as HH for years to come and won't take over $60k out. So, no taxes to speak of. My own two Roth IRAs already have my kid (will add the other one when he is 18) as beneficiary. I don't think I need my Roths in retirement. I manage my own Roths and the returns have been 100% a year since I opened them. I did it in 6 months this year, so getting better. I will pass the knowledge down to my kids instead of private school and it's connections. I would not open a Roth IRA for a minor. There are more important things to know and consider than time in the market. My kids will not sign up for 401k either unless it's a must. My boys are not spenders. They know about stocks and investing. They are just not interested a whole lot. Older one said that mama is doing it, so he can concentrate on college. |
Anonymous
But your match is just their spending money or what because it can't go into the Roth |