Roth IRAs for Kids

[Anonymous]

Anonymous wrote:an amount equal to kid's w-2 income

This. We put in the max we can based on the W2. If we were self employed we could “hire” the kid and max out but we are not.

[Anonymous]

Anonymous wrote:

Anonymous wrote: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.

But your match is just their spending money or what because it can't go into the Roth

I think what PP means is that if the kids contributed 50% of their w-2 the parents would do the same to take the contribution up to the allowed level. We have considered the same for our kids first couple years working. Our assumption is that the kids also need to spend some more on themselves to enjoy the fruits of working so wouldn’t expect them to put 100% in ROTH

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote: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.

They could have done this for you in just a taxable account as well and you don’t even need any income.

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.

Yeah I understand what you are saying…my kids are pretty disciplined with $$$s (and are in cities where they have no interest in a car…so lucked out).

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote: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.

They could have done this for you in just a taxable account as well and you don’t even need any income.

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.

Isn't this a good learning opportunity?
There are investments you shouldn't touch (like a Roth) and savings (for disposal fun). Without any real living expenses, they should be able to do both.

[Anonymous]

Anonymous wrote: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?

Your first big mistake was sending your kids to private schools before college. My kids went to public high schools and subsequently both went to top 10 Universities for academics and are now both in very rewarding and highly lucrative careers.

[Anonymous]

Anonymous wrote:

Anonymous wrote: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?

Your first big mistake was sending your kids to private schools before college. My kids went to public high schools and subsequently both went to top 10 Universities for academics and are now both in very rewarding and highly lucrative careers.[/quote

Irrelevant comment that has nothing to do with Roth IRAs for kids.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:an amount equal to kid's w-2 income

+1 This is the rule

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?

You can put as much as they earn on a W-2 upto $7,500 (I think; check) into a Roth. The contribution can be withdrawn any time and the earnings after age 59.5.

If you want to 'bend the rules' a bit, you can also contribute an additional (or maybe only this) $400 into their Roth. Kids can make upto $400 in miscellaneous income without paying payroll taxes.. Most kids do this through baby sitting or mowing neighbor's lawns, etc. and your kid may or may not. Don't think the IRS is going to be coming around checking on this.. It's small but adds up.

[Anonymous]

Anonymous wrote:

Anonymous wrote: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?

Your first big mistake was sending your kids to private schools before college. My kids went to public high schools and subsequently both went to top 10 Universities for academics and are now both in very rewarding and highly lucrative careers.

there is a point here. OP is bemoaning that they already paid through the nose for private schools and colleges (when we live in an area with excellent free education) but ironically turn their nose up at the guaranteed $$ building move they can make for their kids.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote: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?

Your first big mistake was sending your kids to private schools before college. My kids went to public high schools and subsequently both went to top 10 Universities for academics and are now both in very rewarding and highly lucrative careers.

there is a point here. OP is bemoaning that they already paid through the nose for private schools and colleges (when we live in an area with excellent free education) but ironically turn their nose up at the guaranteed $$ building move they can make for their kids.

That's great you get an excellent free education. Not everyone does. And, what was great years ago isn't great now.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote: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.

They could have done this for you in just a taxable account as well and you don’t even need any income.

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.

Tell them no or let them use their income for their spending money and work it out. Why aren't you using the money to pay for college?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:an amount equal to kid's w-2 income

+1 This is the rule

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?

You can put as much as they earn on a W-2 upto $7,500 (I think; check) into a Roth. The contribution can be withdrawn any time and the earnings after age 59.5.

If you want to 'bend the rules' a bit, you can also contribute an additional (or maybe only this) $400 into their Roth. Kids can make upto $400 in miscellaneous income without paying payroll taxes.. Most kids do this through baby sitting or mowing neighbor's lawns, etc. and your kid may or may not. Don't think the IRS is going to be coming around checking on this.. It's small but adds up.

Don't do this. It's an easy audit flag so the IRS can look into all the income of high earners. It's their right, and even if you have nothing to hide, it'd a huge PITA

[Anonymous]

Anonymous wrote:

Anonymous wrote: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.

But your match is just their spending money or what because it can't go into the Roth

I guess I wasn't clear. Kid earns $1,500, they put $500 in their Roth, we put $500. Still not at the max

[Anonymous]

Anonymous wrote:

Anonymous wrote: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?

Your first big mistake was sending your kids to private schools before college. My kids went to public high schools and subsequently both went to top 10 Universities for academics and are now both in very rewarding and highly lucrative careers.

That’s totally off topic though.

[Anonymous]

Anonymous wrote: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?

We have done this over the years OP and I strongly encourage you to do the same. Our kids are older than yours but we have funded their ROTH IRA as well as an investment account for each kid (we have 3). Each account has almost 300k (900k total for our kids). It's not life altering amount but they are still young and it will help them later.

One minor correction of responses provided... My understanding is that you do not have to have w-2 income, rather you need to have earned income. If your kid babysat your neighbor's kids, they can put that amount in ROTH. You just need to document how that money was earned in case IRS asks.

[Anonymous]

Anonymous wrote:

Anonymous wrote: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.

But your match is just their spending money or what because it can't go into the Roth

People are allowed to gift money for someone else’s Roth IRA contributions. That is legal, as long as the person has enough earned income to make that contribution amount.