Weekly Investment Update
Have Your Child Kick Into A Roth With A Reward To Boot
Published Monday, January 12, 2015 at: 7:00 AM EST
Suppose your teenage child lines up an after-school job and is raking in the money. Your progeny might have an eye on the latest X-Box or iPhone, but there are plenty of other ways to spend that hard-earned cash.
Why would a high school student contribute to a Roth? This is a good time to teach your child about the benefits of tax-advantaged accounts. If your 17-year-old puts away $5,500 each year (the current maximum) and receives a hypothetical 7% annual return, the stash will grow to a staggering $2,235,909 by the time he or she is ready to retire at age 67!
What's more, future distributions from a Roth may be 100% tax-free. Although you generally have to wait until age 59½ to qualify for this treatment, earlier distributions may be wholly or partially tax-free under certain circumstances.
Finally, if you want to take some, or all, of the sting out of the situation, you can give your teenager a cash gift for up to the amount of the Roth contribution. This is perfectly legal as long as the child has earnings from a job. Plus, there's no gift tax liability because the maximum IRA contribution is less than the $14,000 a year you can give without tax liability. Everybody wins.
© 2021 Advisor Products Inc. All Rights Reserved.
- Seven Steps After A Spouse's Sudden Death
- When Should Millennials Start Retirement Saving?
- Live Long And Prosper: Roll Out A Stretch IRA
- Did The Devil Make You Do It? 8 Retirement Miscues
- Ponder These 4 Reasons For Roth IRA Conversions
- Ever Considered Helping Your Adult Child Open A Business?
- Want To Get Your Business Noticed By The News Media?
- To Buy Or Not To Buy: That Is The Business Franchise Question
- 4 Of The Main Reasons To Keep Your Bypass Trust
- When To Harvest Gains, When To Harvest Losses
- Drill Down For Three Key Oil And Gas Tax Breaks
- 10 Ways To Skirt A Penalty Tax On Plan Payouts
- Why Give Securities To Charity Instead Of Cash?
- Do You Plan To Move Your Business To A New State?
- Locked Out Of A Roth IRA? Go In Through Back Door