Financial Tip of the Day

[STGS]

All

I am a huge fan of sharing info and tips surrounding savings and investing. I am also a keep it simple kind of guy, so none of this will be very challenging.

Today’s tip is setting up a Roth IRA for your kids.

You can set up a Roth IRA for your kids and contribute up to the amount of earned income they have each year ($6,000 max for 2020).

How do younger kids have earned income? You and others can simply pay them for specific odd jobs or chores. It can’t be an allowance per se and needs to be at market rates, but you can pay them to mow the grass, walk the dog, clean the gutters, etc....


Let’s do the math.

If you were to contribute $6000 to their Roth IRA starting at age 7 and continue for the next 52 years, while earning 8% annually, they would have...... $4.35 Million at age 59.

Not too shabby for only investing $312k over 52 years. All tax free as well.


Start early and they literally will never have to worry about $$. Leave a legacy.

[300rem7]

Love compounding interest!

[STGS]

Love compounding interest!

8th Wonder of the World!!!!

[CTR0022]

Stupid question I suppose, but does a Roth ira guarantee a 8% annual return?

[STGS]

Stupid question I suppose, but does a Roth ira guarantee a 8% annual return?

Definitely not. But with a long investing horizon (50+ yrs), you can afford to be invested in the “market”. The broad markets have returned greater than 8% on average for the past 50 yrs.

[redneckstudd20]

Hmm

[Landrover]

Yessir!!! Einstein even said compound interest was the most powerful thing he ever saw!!! Great post!!!

Sent from my SM-N986U using Tapatalk

[BBReezen]

Wow that’s an eye opener

[JRL]

Good stuff. Very thankful my dad got me to start maxing out my roth contribution at a fairly young age.

[twosixteens]

And unfortunately they don't teach this in school anymore

[No-Tox]

All

I am a huge fan of sharing info and tips surrounding savings and investing. I am also a keep it simple kind of guy, so none of this will be very challenging.

Today’s tip is setting up a Roth IRA for your kids.

You can set up a Roth IRA for your kids and contribute up to the amount of earned income they have each year ($6,000 max for 2020).

How do younger kids have earned income? You and others can simply pay them for specific odd jobs or chores. It can’t be an allowance per se and needs to be at market rates, but you can pay them to mow the grass, walk the dog, clean the gutters, etc....


Let’s do the math.

If you were to contribute $6000 to their Roth IRA starting at age 7 and continue for the next 52 years, while earning 8% annually, they would have...... $4.35 Million at age 59.

Not too shabby for only investing $312k over 52 years. All tax free as well.


Start early and they literally will never have to worry about $$. Leave a legacy.

Doesn't that "earned income" have to be reported and then it would be taxable since that income would be 1099?

[DEADEYE1]

Money

Start at age 1 and see what ya got

Your Results
ESTIMATED RETIREMENT SAVINGS
In 58 years, your investment could be worth:

$7,572,157



CONTRIBUTIONS
$ 348,000

5% of Total

GROWTH
$ 7,224,157

[hooligan]

Maybe a dumb question but doesn’t this have to be a taxable income? So would I be able to make my 2 1/2 yo a 1099 employee to pay her for cleaning the house and walking the dog?

[STGS]

Maybe a dumb question but doesn’t this have to be a taxable income? So would I be able to make my 2 1/2 yo a 1099 employee to pay her for cleaning the house and walking the dog?

It does not have to be reported via 1099 or W2, much like when you pay the neighborhood kid to mow your lawn. As long as earned income is less than around $12k, kids who are dependents don’t have to pay taxes on that income. I am not a tax or financial expert, so please seek the advise of a licensed professional.

[ctom87]

Give us the tip on how to afford an additional $6,000 a year to give to the kid!

All kidding aside, this is good stuff. I didn't realize I could set up an IRA in my kids name. Sounds like it's time to start the legacy.