Want to jump start your child's retirement with a million dollar tax-free account? Consider this:
The million dollar idea
As soon as your child begins to earn income, open a Roth IRA and set a contribution goal to reach before they graduate from high school. Assuming an eight percent expected rate of return, the investments made by age 19 will grow to FORTY times its value by the time they reach 67 (current full retirement age). For example, $2,500 invested before graduation will be $100,000 at retirement. If you can bump that up to a $25,000 investment before graduation, at retirement it will be worth $1 million!
Compounding interest occurs when interest is earned on the interest generated from the initial contribution. The more time the investment has to grow, the more exponential growth will occur. By starting to save prior to graduating from high school, the investment will have almost fifty years of compounding growth.
Even better, while contributions to Roth IRA's must be after-tax contributions, any earnings are TAX-FREE as long as the rules are followed! Simple to say, but how do you get $25,000 into a child's Roth IRA? Here are some tips.
By helping your child get a head start on saving, it should ease any anxiety regarding retirement and help them focus on school, starting their career, and other personal development goals. If you have questions about Roth IRA’s or any other tax-related issues, please call to discuss them.
As always, feel free to pass this Tip along to friends, and reach out if you need help with your personal tax and finance situation.
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