Summer is here and many of your children will land part-time or full-time work while school is out of session. This provides you the opportunity to "jumpstart" their retirement savings.
Making a Roth IRA contribution for your child is a fantastic idea. The annual contribution limit is $5,000, but not more than your child's earnings. Parents should be cognizant this amount counts towards the $13,000 annual gift tax exclusion ($26,000 for couples).
This contribution paves the road to initial retirement savings. A $5,000 contribution to a 16-year-old's Roth that earns 8% each year will grow to $217,000 at age 65 and $319,000 at age 70. If your child works for a few summers and contributions are made each year, the future balance in the account will be significantly larger.
Roth IRA's are tax efficient savings vehicles. All withdrawals after age 59 1/2 are tax free. Also, contributions, but not earnings, can be pulled out tax-free at any time. If your child then satisfies the 5-Year Rule, qualified distributions on earnings are tax exempt. A first time home buyer's down payment falls under this exemption (within limitations).
Grandparents are eligible to "jumpstart" their grandchildren's savings as well.
Contact Patrick Campbell at (319) 339-4884 or pcampbell@tld-inc.com to discuss your child's or grandchild's savings options in further detail.