Finance Tip Friday: Now Is a Great Time to Start a Roth IRA for Your Kids

Many parents set their children up with bank accounts to teach them about saving. However, if you really want to set your child up for financial success, why not open a Roth IRA? Even though retirement may seem lightyears away for a teenager, having an IRA may be monumental in helping them achieve financial success. Decades of low-maintenance investing and compounding could easily result in thousands or even millions of dollars in the future.

Demonstrating contribution and wealth accrual in a Roth IRA will give your child a solid eye for smart money moves in the future. This is a good way to start them off on the right foot as they enter into the often-overwhelming financial scope of adulthood. 

Can My Kids Contribute to a Roth IRA?

Yes. The rules for contributing to an IRA, Roth or traditional, are fairly straightforward. Your children can invest in one as long as they will be reporting income for the tax year. This income should be up to the IRS limit or the tax bracket they qualify for (whichever is less). 

This could be either from:

Note that the contribution that gets made to the IRA doesn’t necessarily have to come out of your child’s pocket. You can contribute on their behalf if you want to be extra supportive.

For example, let’s say your child made $5,000 this year. That would qualify them to contribute up to $5,000 to their Roth. However, you could help grease the wheels by offering to contribute $2,500 if they contribute $2,500. Teens may be more inclined to contribute if you help them along the way. 

529 Plans and Roths

Have you been using a 529 plan to save for your children’s college tuition? Up until this year, those who saved extra in their 529 and wanted to withdraw the money for purposes other than higher education would have been faced with a 10% penalty. However, thanks to the SECURE 2.0 Act, you can now roll unused 529 assets into the account beneficiary’s Roth IRA without penalty. This is up to a lifetime limit of $35,000 in addition to other qualifications. Therefore, transferring to a Roth IRA may be the best option for utilizing untouched 529 funds.

Are you ready to lower the biggest expense in your life (TAXES!) and learn how to PROTECT your wealth through dozens of asset protection strategies? Check out our Wealth Building Package that will teach you all the strategies you need to know to get started today!

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