we are about to talk about something near and dear to my heart if you have young children
you definitely should watch this video tax-free growth. compounding.
tax-free withdrawals. financial freedom. you probably already know the incredible benefits
of a roth ira did you know that your kids can enjoy those benefits as well
a roth ira isn't typically considered an ideal savings vehicle for kids but in my opinion
it should be as long as your child has earned income a custodial roth ira
can be opened and contributed to on their behalf stick around and i'll tell you how it works
I'm Colin Exelby and I provide financial planning for business owners and their families that make
sense. you know what makes sense giving your kids a financial head start in life
by starting up a roth ira as early as possible does your child earn money from babysitting
do they wash dishes at a restaurant do they walk neighborhood dogs are they a hostess or waitress
at a restaurant even better do they work in your business if you haven't checked out my
video on that benefit look for it in the links below if your child has any earned income that
doesn't come directly from you they should have a roth ira opened right now what is a roth ira and
the power of tax-free compounding as a reminder a roth ira allows anyone that falls within the irs
income limits to contribute after tax money into the account the money is invested grows without
taxes and can be withdrawn in retirement after age 59 and a half without any taxes on the earnings
that growth can be incredible over time just check out this chart investing just three thousand
dollars from age 10 every year until age 65 and earning 8 yields little over 2.5 million dollars
now i'm gonna put access to this calculator that i just showed you in the notes below i think roth
iras are ideal for kids because children have decades for their contributions to grow tax-free
now of course children aren't thinking of their future retirement i know mine definitely aren't
and they often need access to their money to buy those insanely silly things that they want
the beauty of the roth ira as opposed to other retirement vehicles is that you can always access
your contributions without taxes or penalties so if they wanted to withdraw some of the money for
any reason they could you can also access the roth ira contributions and earnings up to ten thousand
dollars for a first time home purchase without any taxes or penalties this can be great for
them later on in life kids any age can contribute to a roth ira as long as they have earned income
let's talk about my family my oldest daughter just turned 10. i'm so proud of her she already has
three businesses she sells bracelets online you can check out her etsy shop in the notes below
she walks plays and dog sits for neighborhood dogs and she's a mommy's helper occupying children
so that busy parents in the neighborhood can get some things done so she has earned
income i'm not giving it to her this earned income is perfect to be saved in a roth ira
what's even better as a parent like myself or a grandparent you can actually provide
the savings on their behalf it's important to remember that gifts investment income
or allowance does not count as earned income you can't pay your child for doing chores either
this income needs to be earned by providing a service to someone else
what's the process first make sure your child is documenting the earned income they receive or
help them out a spreadsheet or a contract can help provide proof of the income if you ever needed it
second the account will need to be opened as a custodial roth ira where the parent or
grandparent will be the custodian the adult maintains control of the account until the
child is no longer a minor that's typically age 18 or 21 depending on the state that you live in
there are a number of custodians who will open these accounts third make your deposit
and invest the funds custodians don't accept cash so a check or electronic transfer would
need to be made either from a custodial account or an account in the parent or grandparent's name
what are the contribution limits the roth ira contribution limit is six thousand dollars a
year in 2021 or the total of earned income for the year whichever is less for example if a
child earns three thousand dollars dog walking in the entire year of 2021 they can contribute
up to three thousand dollars to a roth ira if they earned eight thousand dollars doing the same thing
only six thousand dollars of it can be contributed into the roth ira as a parent or grandparent
you can gift money to the grandchild to be put in the roth ira as long as they have
that earned income the irs doesn't require that the specific dollars of compensation
be used for the roth ira contribution just that the contributor needs to have the earned income
for example the grandchild earns two thousand dollars from babysitting
but uses that two thousand dollars to purchase a new computer if the grandparents gift two thousand
dollars to the grandchild that money can be used to contribute to the grandchild's roth ira if you
have an entrepreneurial child like hopefully mine is becoming this is the perfect time to help their
financial future remember the contributions can be withdrawn and used for anything in the
future without penalties and taxes they could be used for high school or college expenses
a first car a new business venture anything you can imagine put the power of tax-free compounding
to work for your child today as long as they have earned income if you have any questions
on how you could potentially employ these strategies book a meeting with me at my website
celestialwm.com or speak with your cpa if you enjoyed this video make sure to give it a like
and make sure you smash that subscribe button so you're notified whenever i produce a new financial
planning video and if you have any comments you'd like to add please do so in the comments below
if you're already doing this let me know about how you're doing it thanks see you soon
you