Retirement account for kids?
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We already have 529 accounts for our kids for college. We have our own retirement accounts, etc. I know you can open custodial IRA accounts for kids but only if they have earned income. My lazy ass 5, 3, and infant kids haven't picked up a job yet.
My question... do any of you have (or know of) an account I could start today for my kids that they will control later (and hopefully not touch until they retire?) We'd contribute a small fixed amount each month from here until they're at least 18. Would love to get their compound interest started when they are lazy ass toddlers instead of when they are lazy ass college graduates, like when I started saving (via 401K).
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Your child, regardless of age, can contribute to an IRA provided they have earned income, defined by the IRS as "all the taxable income and wages from working either as an employee or from running or owning a business."
https://www.investopedia.com/articles/personal-finance/110713/benefits-starting-ira-your-child.asp
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I think it would be really cool for an 18 year old kid to see a balance that has grown through their lives, at a manageable rate of saving from their parents. They wouldn't get that piece of personal data if it was money tucked away with the rest in their folks' IRA.
Education is extremely important.
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@89th, if you only want to let your kids see the power of compound interest/growth and not worry about getting any tax advantage, major brokerages do offer "custodial accounts" that you can open for the kids and manage on their behalves and then turn the accounts over to them when they reach certain age (I have seen options for 18, 21, and 25 with various conditions). Examples:
- https://www.schwab.com/custodial-account
- https://www.fidelity.com/open-account/custodial-account
- https://investor.vanguard.com/accounts-plans/ugma-utma
Good luck.
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One thing you can do is overfund their 529s. They would at some point become the custodian and the beneficiary, and could change the beneficiary to their own kids in time. Of course they could also take the money out and take the tax hit.
I've most likely done this, somewhat consciously. I say 'most likely' because it's always possible that he pursues 10 years of schooling at one of those ridiculously expensive schools, which would drain it. I say 'somewhat consciously' because I deliberated over the years how much to keep funding it, and finally decided overfunding it would be preferable to underfunding it for the reason I outline above.
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One thing you can do is overfund their 529s. They would at some point become the custodian and the beneficiary, and could change the beneficiary to their own kids in time. Of course they could also take the money out and take the tax hit.
I've most likely done this, somewhat consciously. I say 'most likely' because it's always possible that he pursues 10 years of schooling at one of those ridiculously expensive schools, which would drain it. I say 'somewhat consciously' because I deliberated over the years how much to keep funding it, and finally decided overfunding it would be preferable to underfunding it for the reason I outline above.
@jon-nyc said in Retirement account for kids?:
One thing you can do is overfund their 529s. They would at some point become the custodian and the beneficiary, and could change the beneficiary to their own kids in time. Of course they could also take the money out and take the tax hit.
I've most likely done this, somewhat consciously. I say 'most likely' because it's always possible that he pursues 10 years of schooling at one of those ridiculously expensive schools, which would drain it. I say 'somewhat consciously' because I deliberated over the years how much to keep funding it, and finally decided overfunding it would be preferable to underfunding it for the reason I outline above.
Harvard Med can be expensive.
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@Horace said in Retirement account for kids?:
I think it would be really cool for an 18 year old kid to see a balance that has grown through their lives, at a manageable rate of saving from their parents.
My son got 5k from my Dad's estate when he was 2. I put it in a UMTA account in the S&P and it's almost 20k now. I show it to him periodically.
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I think it would be really cool for an 18 year old kid to see a balance that has grown through their lives, at a manageable rate of saving from their parents. They wouldn't get that piece of personal data if it was money tucked away with the rest in their folks' IRA.
@Horace said in Retirement account for kids?:
I think it would be really cool for an 18 year old kid to see a balance that has grown through their lives, at a manageable rate of saving from their parents. They wouldn't get that piece of personal data if it was money tucked away with the rest in their folks' IRA.
Aside from the financial benefit to them, showing the kid(s) what compound interest can really do over 18 years is a life lesson I want them to learn quickly. I learned it later than I wanted to, but not too late.
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Thanks for all the replies. A few responses:
@Jolly our retirement is (being) funded and on a good trajectory. The cash I'm referring to here is what is currently bouncing around in savings or taxable investment accounts. (i.e., money to invest and not needed in case of emergency)
@Axtremus - The custodial accounts won't work because they require the minor to have earned income. But UTMA is intriguing... basically an investment account that turns over to the minor when they are 18 or 21.
@jon-nyc - Our 529s will likely be overfunded as well, so I'll need to keep an eye on it. From what I can tell, you can transfer up to $35k (or $6500 a year) into a roth IRA but otherwise yeah there are taxes (and 10% penalty?) for excess withdraw. Not sure I want to complicate things by worrying funding my grandkids' generation yet, LOL.
Of course whether it's 18 or 60 years from now, the idea of what a dollar will be worth then is a big scary. For example, $100 today will be the same as $154 in 18 years, or $344 in 60 years.
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Thanks for all the replies. A few responses:
@Jolly our retirement is (being) funded and on a good trajectory. The cash I'm referring to here is what is currently bouncing around in savings or taxable investment accounts. (i.e., money to invest and not needed in case of emergency)
@Axtremus - The custodial accounts won't work because they require the minor to have earned income. But UTMA is intriguing... basically an investment account that turns over to the minor when they are 18 or 21.
@jon-nyc - Our 529s will likely be overfunded as well, so I'll need to keep an eye on it. From what I can tell, you can transfer up to $35k (or $6500 a year) into a roth IRA but otherwise yeah there are taxes (and 10% penalty?) for excess withdraw. Not sure I want to complicate things by worrying funding my grandkids' generation yet, LOL.
Of course whether it's 18 or 60 years from now, the idea of what a dollar will be worth then is a big scary. For example, $100 today will be the same as $154 in 18 years, or $344 in 60 years.
@89th said in Retirement account for kids?:
@Axtremus - The custodial accounts won't work because they require the minor to have earned income. But UTMA is intriguing... basically an investment account that turns over to the minor when they are 18 or 21.
The ones I linked to accept unearned income (e.g,, gifts from parents).
Custodial IRA or custodial Roth IRA have tax advantages and are limited to earned income. But the ones I linked to are no retirement account, there is no tax advantage, so they are not limited to earned income.
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Thanks for all the replies. A few responses:
@Jolly our retirement is (being) funded and on a good trajectory. The cash I'm referring to here is what is currently bouncing around in savings or taxable investment accounts. (i.e., money to invest and not needed in case of emergency)
@Axtremus - The custodial accounts won't work because they require the minor to have earned income. But UTMA is intriguing... basically an investment account that turns over to the minor when they are 18 or 21.
@jon-nyc - Our 529s will likely be overfunded as well, so I'll need to keep an eye on it. From what I can tell, you can transfer up to $35k (or $6500 a year) into a roth IRA but otherwise yeah there are taxes (and 10% penalty?) for excess withdraw. Not sure I want to complicate things by worrying funding my grandkids' generation yet, LOL.
Of course whether it's 18 or 60 years from now, the idea of what a dollar will be worth then is a big scary. For example, $100 today will be the same as $154 in 18 years, or $344 in 60 years.
@89th said in Retirement account for kids?:
Of course whether it's 18 or 60 years from now, the idea of what a dollar will be worth then is a big scary. For example, $100 today will be the same as $154 in 18 years, or $344 in 60 years.
Maybe a few I-bonds?
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I did one through vanguard for my high school best friend’s kid. Transfer wasn’t that bad. Not much worse than any account opening process at a brokerage.
Maybe I just have low expectations
