Unlocking the Power of Roth IRAs for Your Children - Expert Edition Episode 71
Today, I'm excited to talk about how you can open a Roth IRA for your kids. Even if they're not old enough to have a regular job, they can still earn income by doing things like babysitting, dog walking, or even modeling. I'll explain how any earned income can go into a retirement account and the benefits of starting early. Plus, I'll share some tips on how to manage these accounts and why a Roth IRA is such a powerful tool for your child's future.
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TRANSCRIPT:
Naseema: [00:00:00] What's up, what's up you guys happy Tuesday So every time I post about my retirement accounts for my kids I always get this question about their Roth IRAs, how can you open a Individual retirement account, if your kids aren't allowed to work I'm going to break it down for you, even though I've touched on it briefly, I'm going to dedicate this whole podcast episode on expanding out and how that works and giving you all the deets about that.
Any child, regardless of age, can have a individual retirement account as long as they have earned income. And you're just like how can a kid have earned income? That doesn't even make sense. They're not old enough to work like for some people that's 14 when you can get a work permit. Yes, kids can have earned income and examples of earned income for a child would be Babysitting would be dog walking would be mowing the lawn.
All of those things they can do [00:01:00] at any age. A baby can be a model, a child model, model for photos, model for videos. And in the example of my kids, my kids appear in my social media content. So they're modeling in there. acting in those ways. So, they can earn income. Things that aren't considered earned income is allowance that you give your kids and inheritance or any kind of interest that they might get from investments that they may have had set up for them, like in a trust or whatever.
Those are examples of earned income, but also if you have a small business, you are able to employ your children and can give them money towards their retirement account. You can have them do things like filing, sweeping the floors, shredding stuff handing out flyers, managing your social media accounts.
So those are some examples of things that. They can do in your small businesses. There's also some ways in the back end that you can save on taxes by employing your kids, but this is not what I'm talking about here. This is just straight up [00:02:00] opening an individual retirement account for your kids, as long as they have earned income.
Now, some really crazy things is really fascinating things about a Roth IRA is that the Roth IRA limit, say for example, It's 2024 right now. So the max you can contribute to a Roth IRA is $7,000. However, for a child, you cannot exceed what they're earning. So if your child only made $1,000 this year, you cannot exceed the contributions.
However, if that child made $1,000, you don't have to take all of their money and say, put $1,000 in your Roth. You can take your own money and contribute to it. Your uncle's. Your grandma, your cousins, anybody who wants to contribute into your Roth can, but it just has to be at that max of either $7,000 or what you earned that year.
So that's pretty cool. The benefit, the beautiful thing about a Roth, as you guys know, is that Roths are [00:03:00] extremely Powerful retirement tools. Okay, so the money that you put into a Roth, even though it's after tax, meaning that you've already gotten taxed on that money, the money in those accounts grow tax free.
And when you take the money out. Really if you're in retirement, that money is not taxed. But the other beautiful thing about a Roth is say for example, you have an emergency and you need to take money out without any penalty or taxes. You can take up to your contributions. If you've been contributing, 500 for the last 10 years.
Now you have $5,000 in this account that you can take out tax and penalty free. You just can't take out any of the growth that's in that account. So it's a pretty powerful tool for retirement, for early retirement. It's something like, I could save in this account until she needs a car and I can take money out up to my contributions.
to pay for a car. So it doesn't have to just be a retirement account. But the [00:04:00] beautiful thing in it is that it grows tax free and the money that you take out is tax free. So I love Roth IRAs. And so I think it's a powerful tool in her arsenal. However, I have her brokerage account set up for things like cars, down payment on a house, but it's still Refreshing to know that she can access those funds prior to retirement Some caveats that you just need to know like tread lightly when you're opening accounts for kids And putting money in there if they don't have a job because anybody Anybody who is self employed or is getting wages should file self employment tax if they're making over 400 a year.
Even if they don't have to pay the taxes, they still should file it just in case the IRS comes back and says, Oh, like where did this money in this account come from? Yes, these accounts can be audited So you do want to be mindful of that? So yeah, that's how I set up. The account my [00:05:00] daughter naima just had An ad for go Henry go live and people have been resharing it.
Thank you so much for that. If you see her ad, please and comment on it, I'm not sure if it's on the go Henry page, but support my girls because they are actively investing in contributing to their retirement, but also learning to understand. what to do with their money and how to save for the future.
And so I think a Roth is a powerful tool for your kids as soon as they start having some earned income. So comment on this video, let me know if your kids are working, where are you putting their money? How are you teaching them about investing? And I want to see these accounts open ping me as soon as you open those retirement accounts for those kids that are earning income.
All right, see you later.
Hey there I’m Naseema
My dream is for everyone to know that financial independence is attainable with a little intentionality. Learn how I can help you finally break the cycle of living paycheck to paycheck.
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