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IRA for children

Started by Irish247, September 27, 2018, 04:22:17 PM

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Irish247

I have been weighing the pros and cons of children IRAs. Does anyone have thoughts on this. My son is over 2 and starting to reach an age where he can do some legitimate work for one of my property management LLCs. Addressing letters with stamps etc, something small, but something to get the ball rolling.  There are so many vehicles to use to set up our kids, I'm just looking at additional options.   With  529 plan already going for each of them and maxing it every year I think college and beyond will be set. My FIL will be superfunding the accounts as well. I just keep thinking of whether or not starting the custodian IRA is right or not. Surely time and compounding would set them up huge.  Worth it?

numbers

For me it would be a no brainer set it up and be AGGRESSIVE with the investments. I did although not as young as 2.
What do you see as "cons"?


rtysmith

I didn't start at 2, but fully maxing out and putting in aggressive investment (lendinghome.com, etc). We should all be doing this to ensure retirement and wealth for the future generations, and I will teach my children that as soon as they start making paychecks this needs to be maxed out every year.

Sam

Thanks for addressing this topic. I haven't focused on IRAs at all as I wasn't allowed to start one after I realized what they were a year after working.

Can you guys share some of the details regarding what is the max IRA contribution for children? Same as adults? How do decide how much to compensate them and make them feel motivated if you're funding their untouchable IRA? Why not 401(k) for your kids for more contribution?

Finally, is it worth contributing to a child IRA if they don't earn enough to pay income taxes?

Thx

Regards,

Sam

japes

Paul Merriman has an article that describes how to mix a Roth IRA, a lot of Small Cap Value and a whol elotta time to make a serious foundation for future generations.

https://paulmerriman.com/how-time-can-turn-3000-into-50-million/

Jon Sharpe

The only issue I can see with starting at two years old is that you can only contribute what they earn. I know you said he can apply stamps etc... to "earn" income, but I'm not sure it would pass the "red face" test later if you were sitting across from an auditor. Other than that, why not start early?

I just talked my daughter into opening up a Roth IRA with her summer job money. She just turned 18. I'm probably going to get my son to open one as well, he's 16.

Cheezus

Quote from: Sam on October 01, 2018, 07:55:22 AM
Thanks for addressing this topic. I haven't focused on IRAs at all as I wasn't allowed to start one after I realized what they were a year after working.

Can you guys share some of the details regarding what is the max IRA contribution for children? Same as adults? How do decide how much to compensate them and make them feel motivated if you're funding their untouchable IRA? Why not 401(k) for your kids for more contribution?

Finally, is it worth contributing to a child IRA if they don't earn enough to pay income taxes?

Thx

Why couldn't you start an IRA?

My understanding is you can start an IRA for a child, as the custodian, and make the same contributions you would as an adult.  It's probably actually a good idea and I hadn't thought seriously about doing it.  But this topic does make some sense.  If you funded your childs IRA with $10,000 over their first 2 years of life ($5,500 max per year).  Not ever putting another penny in after.  At the S&P 500 average, they would have over $2M around age 60.  If you fund as a roth IRA (you should) - then it would be all tax-free, too.

grIoUNt

I'm not sure that at age 2, you can contribute to an IRA for them. Laura Adams addressed this last year in a podcast. I've copied some text from the transcript:

QuoteSo, if a child earned money during the tax year, you or your child can contribute as much as he or she made, up to the annual limit, which is currently $5,500. But the tricky part about IRAs for minors is that their earned income must be documented.

That means you can't fund an IRA for an infant or toddler who can't legitimately earn income. You can't pay an 8-year-old a cash allowance for household chores and call it income for the purposes of an IRA without proper documentation. Additionally, you can't pay kids an outrageous rate, like giving your teen $1,000 to wash your car, and then put it in an IRA.

from: https://www.quickanddirtytips.com/money-finance/retirement/how-to-make-kids-rich-by-investing-in-an-ira?page=1

Cheezus

Ah yes, totally forgot about the whole income requirement to have an IRA.  Makes sense.