Home
>
Wealth Building
>
Create Tax Savings And Transfer Wealth To Your Child With A Roth IRA

Create Tax Savings And Transfer Wealth To Your Child With A Roth IRA

Parents must give serious thought to protecting their family through estate tax planning. While life insurance and trusts should be a part of every plan, Roth IRAs can be a simple tool for passing money to your child on a tax-free basis.

Roth IRA

First, we need a quick summary of the Roth IRA. A Roth IRA is an after-tax retirement vehicle that produces huge tax savings because all tax distributions are tax-free. That statement can a bit confusing, so lets break it down. The downside of a Roth IRA is the fact that contributions are not tax deductible as with traditional IRAs or 401(k)s. The upside of a Roth IRA, however, is that all distributions are tax-free once the person reaches the age of 59?. So how can you use a Roth IRA to pass money to your child?

Opening A Roth IRA For Your Child

One of the biggest keys to retirement planning is "time". The more years you spend saving money for retirement, the more you should have when that blessed day arrives. Imagine if you had started saving for retirement when you were 16. How much bigger would your retirement nest egg be? What if you purchased Microsoft stock in 1990 and watched it split eight times? Okay, that was painful example if you missed that opportunity. Nonetheless, why not do for your child what you didn't do for yourself?

The fundamental goal of estate planning is to pass as much of your estate as possible to your family on a tax-free basis. You can transfer relatively small amounts of money to your child now. If you have a 16 year-old child with a Roth IRA, you can contribute $4,000 in 2005. That $4,000 is going to grow tax-free for 43 years and be worth quite a bit. A ten percent return would result in the account growing to roughly $200,000 and the full amount would be distributed tax-free. There are other practical advantages to opening a Roth IRA for your child.

As a parent, it is vital that you teach your child the value of money. Opening a Roth IRA gives you the opportunity to sit down and teach your child the value of saving and investing, instead of yelling at them to clean their room. While a parental lecture on the need to save money would typically meet with glassy eyes and yawns, your child's attitude will undoubtedly change when you are talking about their money.

Work and Maturity Issues

Before you rush out to open a Roth IRA for your child, you must determine if your child is eligible to open an account. To open an account, your son or daughter must be working at least part time for an employer that reports their wages to the IRS. Hiring your child to take out the trash each week is not going to cut it, nor will this strategy work for your 5 year-old. Many teenagers, however, have summer jobs that should suffice for IRS consideration. To avoid any trouble, you should consult with your tax advisor.

A more sublime issue concerns the maturity level of your child. Keep in mind that the Roth IRA will be opened in their name. Your son or daughter will have the legal right to do what they will with the account. It is strongly suggested that you clearly explain the consequences of taking money out of the account [taxes, penalties, being cut out of the will, forced to eat healthy food, grounded for life, etc.] but the decision lies with them. As difficult as it is, try to be objective in evaluating how you child will react to knowing the money is sitting in an account. If you have doubts, you should probably investigate other tax saving strategies.

Opening a Roth IRA for your child can be a very effective means of transferring wealth to your child and teaching important life lessons. If your child exercises restraint, your relatively small contribution to their Roth IRA can grow into a sizeable tax-free nest egg.

Richard Chapo is CEO of http://www.businesstaxrecovery.com - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review. He can be reached at http://www.businesstaxrecovery.com.

whole house cleaning Deerfield ..

In The News:

Essential phone settings to enable before losing your device, including Find My network, location services and security features for iPhone and Android.

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

Cybersecurity research shows weak passwords remain a major threat, with simple patterns and number sequences putting millions of accounts at risk.

New Android malware BankBot YNRK silences phones, steals banking data and drains crypto wallets automatically. Learn how this advanced threat works.

FDA approves first human trial for Paradromics' brain-computer interface that could restore speech for paralyzed patients through neural technology.

New phishing platform QRR targets Microsoft 365 users across 1,000 domains in 90 countries. Learn how to spot fake login pages and protect your accounts.

OpenTable now uses AI to track your dining habits and share insights with restaurants. Learn what data they collect and how to protect your privacy.

Google's discontinued Nest thermostats still secretly upload home data to company servers despite losing smart features, raising serious privacy concerns.

New Android malware NGate steals NFC payment codes in real-time, allowing criminals to withdraw cash from ATMs without your card. Learn protection tips.

DoorDash confirms data breach exposing customer names, emails, addresses after social engineering attack. Learn how to protect yourself from scams.

Concerned about Google's AI scanning your Gmail? Learn how to disable Gemini features that access your emails, Drive files and Chat messages for privacy.

Google warns Android users about dangerous fake VPN apps hiding malware that steals passwords, banking details and personal data from phones and tablets.

Apple's digital passport feature lets iPhone users breeze through TSA checkpoints this holiday season using Digital ID technology at 250+ airports.

A new phishing scam targets family photos with fake "Cloud Storage Full" alerts. Criminals steal credit card information through fake sites. Learn protection tips.

South Korean scientists create ultra-thin fabric muscles that turn clothes into robotic assistants, lifting 33 pounds while weighing under half an ounce.

Archer Aviation has acquired Hawthorne Airport for $126M to launch an LA air taxi network ahead of the 2028 Olympics, featuring AI-powered eVTOL operations and next-gen aviation tech.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Fake AI apps disguised as "ChatGPT" and "DALL·E" are flooding app stores with dangerous malware that steals data and monitors users without detection.

Fake buyers demand specific vehicle reports from unknown sites to steal credit card information from car sellers, but warning signs can help identify these scams before paying.

Android users can now manage apps across multiple devices more easily with Google Play Store's updated remote uninstall button in the latest update.

NASA's Perseverance rover discovers shiny metallic rock on Mars that could be a meteorite from an ancient asteroid, containing high levels of iron and nickel.

Holiday scams spike during Black Friday and Cyber Monday as criminals exploit your leaked personal data. Learn how to protect yourself from fake stores and phishing.

Commerce Department proposes TP-Link router ban over Chinese security risks. Learn how this potential prohibition could affect your home network and devices.

Hyundai AutoEver America suffered a data breach affecting 2,000 current and former employees, exposing names, Social Security numbers and driver's license information.

Washington court rules automated license plate reader images are public records, even when stored by vendors like Flock Safety, setting precedent for transparency.

Create Tax Savings And Transfer Wealth To Your Child With A Roth IRA

Wealth Building