A Roth IRA is one of the best investment vehicles out there to take advantage of tax FREE growth over the course of your lifetime.
A Roth IRA is not an investment. It is an investment account that provides significant tax benefits for the funds invested within it.
Tax free growth is POWERFUL and eye opening when you look at the impact on an account over a long period of time.
Many of us do not know what it’s like to receive income tax free. Imagine receiving a lump sum of money or having access to a lump sum of money, with no tax consequences. No need to file a tax return, no need to report your income. Tax Free.
That is the benefit of a Roth IRA. The earlier you are able to open up a Roth IRA and contribute to it, the more opportunity you are giving your assets to grow over time, build your wealth and never have to pay tax on those funds again. Sounds dreamy if you ask me.
Imagine you open a Roth IRA for the benefit of your child when they are 13 years old….
You contributed $22,500 into the Roth IRA and ended up with $1.5M after 40 years. The beauty and power of tax free compound growth. See below to learn how to make this work for your child!
Not everyone can contribute to this fantastic investment vehicle. There are two requirements that need to be met in order to contribute to a Roth IRA account.
There are no age restrictions to contribute to a Roth IRA. But as noted above, they will have to earn an income.
There are two main ways for your minor child to earn an income and contribute to a Roth IRA:
Another tip here: If your child is not required to file a tax return because their income is too low and so it is not required, then I would strongly advise you keep a log and track the child’s time and earnings to fully support the contributions made to the Roth IRA.
If you are a business owner with children, there is a big opportunity here for you to reasonably employ your children and set up a custodial Roth IRA account for their future benefit.
There are lots of ways you could legitimately employ your child to help with the family business. Here are a few:
You could pay them a reasonable wage for their time and $6,000 worth of their income could be used to fund their custodial Roth IRA account.
Another benefit to you as the employer, is that if your child was on payroll, you would also get a business tax deduction for their earnings.
As the custodian of the account, you will have control over the investments and the activity in the Custodial Roth IRA until the child becomes of age, either 18 or 21 depending on the state you live in. Then at that point, your child will then have control and ownership of the account.
They will be able to freely take out any contributions made into the account at any time, penalty and tax free.
If they want to take out the growth and the earnings from the account, they will have to wait until they are 59 1/2 to do so penalty and tax free.
This is by far one of the best ways to set your child up for future financial success!
Learn more about Roth IRAs and how they work in a past blog post.
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Blog Post: All About Roth IRAs & Why I Love Them
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