Although I am a licensed attorney, I do not practice law. Yet, I combine my passion for personal finances by helping people as a licensed registered investment advisor and providing holistic wealth advising for goal-oriented individuals. This blog aligns with my passion for sharing my knowledge with goal-driven individuals looking to enhance their financial literacy and amplify their wealth. Welcome!
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When kids save for retirement, you provide them with positive lessons and results beyond saving for retirement.
Besides saving for retirement, your children will learn the importance of working, earning money, and saving for their future. Gaining insight into your work ethic, the value of a dollar, and delayed gratification are amazing lifelong lessons too. Experiencing work and saving for retirement will help ensure your children are financially secure and knowledgeable.
While there are no minimum age requirements, funding an IRA is contingent upon earning income the year you fund it.
Your child’s earned income, “wages, salaries, commissions, tips, bonuses, or net income from self-employment.“
No worries. Your child’s earned income alone does not impact your ability to claim your child as a dependent.
If your child has a W2 or 1099 from their employer, these documents clearly show their earned income. But, always keep records (such as the date, time frame, the person/business that paid them, earned amount, and the service or thing provided). Detailed records are especially important for non-traditional positions such as babysitting, tutoring, and dog walking.
When a child meets the earning criteria to save and invest in a ROTH IRA, it is likely the best vehicle. Money contributed to a ROTH is contributed with after-tax dollars, and qualified distributions are not taxed in the future. The ROTH allows you to invest the money in the account yet not pay tax on the gains.
I introduced my children to ROTH IRA accounts at the start of high school. I encouraged them to work, offering to fund the ROTH for them for their future while still in high school. Also, I offered to match the money they earned and set aside for college, dollar for dollar. Another option is offering to fund their ROTH as a holiday or birthday gift. Once on their own, they continued to fund; the knowledge and experience gave them the advantage.
Of course, always put your finances first; fund your retirement accounts to reach your retirement goals.
The compound calculator allows you to explore and see the compounding advantage of saving and investing money sooner than later. The IRA can teach your child how to invest in a low-cost, diversified portfolio of mutual funds and ETFs.
Indeed, there are many ways to save for goals, and you need to decide what is best for your child. Consider their overall journey and goals when deciding where to place money. Tax-advantaged accounts are always a great consideration. There are other things to consider too. Consider the intended use of the money, time horizon, and risk tolerance. When considering college, determine the impact the account can have on your child qualifying for financial aid.
Get off on the right financial foot with your own financial advisor rather than be among the less than 10%. A complimentary consultation with a licensed financial advisor is a great first step for you to learn about the best ways for kids to save for retirement as well as for yourself.