In today’s world, many are postponing saving for retirement. We are now witnessing the consequences of that decision as many are nearing retirement with very little savings stashed away and a lot of regret.
While it’s never too early to start saving, we can use this opportunity to teach future generations the value of saving for retirement from an early age. Gifting your kids a Roth IRA is a powerful way to introduce them to the concept of retirement and allow their savings to grow tax-free for decades to come.
While there is no set age limit to opening an account, a child must have earned income to have a Roth IRA in their name. Income from jobs such as babysitting or mowing lawns qualifies as earned income.
As of 2019, you can contribute up to $6,000 to an IRA account. You can contribute to your child’s account on their behalf, but the annual contributions cannot exceed their earnings in a given year. If your child only earns $1,000 in one year, he/she cannot contribute more than that into his/her Roth IRA.
A Roth IRA’s flexibility allows it to be used for other financial goals beyond retirement. Up to $10,000 can be withdrawn, penalty and tax free, for a first-time home purchase. Additionally, money can be withdrawn to cover qualified education expenses, such as college tuition.
THE BOTTOM LINE:
While many of us are struggling to start or boost our own retirement savings, it may seem downright laughable to pass down advice to future generations to start early. However, having those conversations early can be powerful. Your kids’ savings have the potential to grow substantially over the years and they will likely have mastered the habit of saving and grasping the concept of investing by the time they reach adulthood.
As you hold your kids accountable to their financial goals, they may even begin holding you accountable to yours.