When Should I Open a Custodial Roth IRA For My Kids?
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A year and a half back or so, I had gotten quite behind on giving allowances to our kids (because who has paper money in their wallet anymore?) So I made them a really good offer that I would "daddy brokerage" each of them half a share of JNJ stock in exchange for the allowance I owed them (because my daughter was going through bandaids quite rapidly at the time)
We've checked in periodically, whenever there has been dividend distributions. Fast forward to now and JNJ has gone up over 30% since then. Recently my 14 yr old agreed to open a fidelity youth brokerage account and transfer a couple hundred (that he has been squirreling away in his plastic-green-crayon piggy bank) to an index fund.
Can't wait for him to get earned income. A Roth will definitely be opened.
The minute my son started working lay 16, we opened a custodial IRA. We established a bank account at 14 with debit card, put money in and he had to manage it, (football games, food, etc). First car, my old car, 2nd car, he was responsible for gas, oil changed. When that 2nd car was stolen……..hmmmm, we made him get his own car and make all payments and total responsibility. I continue to make sure he puts money in his Roth IRA. He rolls his eyes now but when he gets in his 40’s, he will appreciate it.
When you 'match' the child's ROTH IRA contribution, can you contribute to their ROTH? This is NOT earned income. Or do you contribute to another account or just gift them the money so they save their own money?
Love that Brian is a lefty!
I’m torn between this and other ways to help them. Not sure if I trust my 18 year old kids with those funds. Not because it’s about trustworthiness in general…but it’s an 18 year old kid…and I remember those days all too well haha
How does this affect eligibility for college aid? Is it a negative to the FAFSA calculation?
Doesn't a custodial Roth also affect your child's ability to receive financial aid for college? Heard that on another financial youtube channel.
Setting your family up for success starts early. And, educating them about what you are doing is important. Great lessons here. As a CERTIFIED FINANCIAL PLANNER Professional, I am so glad to see you guys talking about this concept. The custodial Roth IRA is incredibly powerful but MUST be used correctly. The key is "earned" income. I can't tell you how many clients I have that said, "I wish my parents would have done this for me." Cheers guys!
Key Roth term, "earned income." The child earns the money to contribute to Roth and Bank of Dad is happy to contribute/match. This is a perfect FOO life lesson platform. Keep pushing this one Gentlemen.
We made a spreadsheet for chores and invest that in a Roth for our 8 year old. Also our financial advisor suggested it.
That's such a gem nugget at the end – model scarcity when they're younger so they don't think they'll never be able to attain the lifestyle they're accustomed to. We've always lived beneath our means and had our children contribute to the family through chores and work, but I'd never translated it to preparing them for their adult lifestyle in quite that way.
Why wait till they start work? I did the same thing when my very young kids received Birthday and Christmas money. "You just got a $20 bill for your birthday. You have to save part of everything you make just like mommy and daddy. If you spend $10 on a video game you also have to save $10 in the bank. When you save $10 in the bank I will GIVE you another $10 to save in the bank – now you have a video game and $20 in the bank. If you save the whole $20 bill in the bank, I will give you another $20 bill to save in the bank. Then you won't have a video game but you WILL have $40 in the bank (that's TWICE as much). It is up to you…" When they had the minimum for a Vanguard account they became "investors". That was 2012 which was pretty lucky timing for them 🙂 I stopped matching when they became adults. Now I wonder which way would have been better.
Thanks for featuring my question. We decided to pay our young child to pick up rocks around our place and paid her for that since it is not a typical family activity. She did not earn enough to be taxed but it did allow us to start helping her start saving.
Uh, how can i open a custodial roth IRA for myself?
Can I open a custodial roth IRA for my young kids if they have earned income by selling Lemonade? How would that work?
I wish my patents would have done this for me instead of buying savings bonds.