Why are you waiting for your kids to grow up and start a Roth? Open one now for them!

As one of the financial advisors here at FSB Premier, I work with clients everyday who are working and saving for retirement.  When I help clients start on the path of saving for the future and retirement, regardless of age, I often hear, “I wish I would have started this sooner”.  It is better to start saving young instead of waiting until you have more money to set aside.  We all know expenses don’t go away as you get older. Imagine where you would be on this journey if you started saving when you earned your very first paycheck. I have worked with thousands of clients for close to 15 years and not many know about or have started an IRA for a child in their life.  It is very rewarding for me to sit down with a parent and their teenager to discuss the benefits of starting to save now by opening a custodial account.

I have 6 kids and they all have different personalities.  Some of them are savers and some are spenders.  Putting money into a Roth IRA is not at the top of most kids’ priority lists. They would much rather spend it on things like shoes, video games, or door dashing food because of the excitement and instant gratification.  One of my sons turned 14 this summer and before he found his first job, I shared with him how little it would potentially take each month to set him up as a millionaire in retirement.  His response was, “That’s all? I can do that much Dad”.  We opened a Minor Roth IRA for him and began funding it later that summer as soon as he got hired at a local restaurant.  With custodial IRAs, the contributions for the year can’t exceed his earned income but I can make matching gifts to go with his contributions.  We talk investment strategies that correlate to his everyday life. 

The beautiful thing about the current rules around minor IRAs is that as long as a child in your life has earned income, you can open an account for them.  With a Roth, as the child grows and moves towards retirement, they will not only grow money through the power of investing and compounding but will also have options down the road of accessing the principal for things like college or the purchase of their first home.  The Roth allows them to begin saving at the earliest point possible with purpose.  This results in decades of compounding growth and eventually tax-free withdrawal options after age 59 ½. As we approach the tax filing deadline of 04/18/2023, many people will take advantage of prior year contributions for themselves but aren’t thinking about their kids or grandchildren and opening an IRA for them.  We all want the best for the ones we love in our life but don’t always know how or where to start and who to trust.  Working with a trusted advisor helps to see potential pitfalls on the road to retirement as well as ways to supercharge retirement savings with things like a Minor Roth.

- Written by Bob Hansen

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