August 2021
College and Tax Planning

Not only is it important to save toward paying for the skyrocketing cost of college, but there are other savings vehicles available for those under age 18. What better way to maximize a summer of babysitting, lawn cutting, or part time gig, than to begin saving in a minor Roth for long term growth?

Most children, whether they are teenagers or younger, don't spend a lot of time worrying about retirement.  After all, when they are juggling schoolwork, extracurricular activities, and all the other challenges of adolescence, saving for retirement probably doesn’t register on their radar screen!

However, that doesn't mean that savvy parents, grandparents, and other family members can't step in to help jumpstart their children's retirement savings. One way to do that is to establish a custodial account Roth IRA, and more generally as a Roth IRA for minors. A Roth IRA for Kids provides all the benefits of a regular Roth IRA, but is geared toward children under the age of 18. Minors cannot generally open brokerage accounts in their own name until they are 18, so a Roth IRA for minors requires an adult to serve as custodian.

The custodian maintains control of the child's Roth IRA, including decisions about contributions, investments, and distributions. In addition, statements are sent to the custodian. However, the minor remains the beneficial account owner and the funds in the account must be used for the benefit of the minor. When the minor reaches a certain required age, typically either 18 or 21 in most states, the assets must be transferred to a new account in their name.

A contribution to a Roth IRA for minors can be made if a minor has earned income during the year. Eligible income can include formal employment income or self-employment income. Activities like babysitting or mowing lawns can qualify a minor for Roth IRA contributions. For example, if your child or grandchild earned $2,000 during a summer job, you could contribute up to $2,000 to a Roth IRA in their name.

Establishing a Roth IRA for minors allows the children in your life to begin taking advantage of the opportunity for tax-free growth at a young age, and gives you an excellent way to begin discussing money and savings with your child.  While your children may not be overly excited about this idea now, they will thank you later for launching their retirement savings in such a smart way. If you are interested in starting a Roth for the children in your life, give us a call at the office to get started!

If you have questions, please contact us.

MARKET UPDATE
FINANCIAL PLANNING
401(K) ALLOCATION

To download the August 2021 Newsletter: CLICK HERE