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Beat the IRS: Roth IRAs for Your Kids and Grandkids

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By Alexandru Marian @ Shutterstock.com

If you have a child or grandchild who is working this summer, you might be able to help them catch FIRE: Financial Independence Retire Early.

If you’re looking to be a member of my Survive & Thrive club, click here.

Help them establish a Roth IRA, and if they’re under age 18 or 21 (depending on your state) set-up a custodial account Roth IRA.

They can contribute $6,000 or the total of their earning income whichever is less. For example, if they earn $3,000 that’s their max not $6,000.

The key is to have earned income from an employer.

It doesn’t matter where the money comes from either. Let’s say your grandchild earns $3,000 for the summer. You may want to make an arrangement where you’ll match whatever she saves.

For example, if she makes $3,000 and wants to put $1,500 into a Roth IRA, your match of $1,500 brings her to her $3,000 cap.

The beauty about a Roth IRA is, you and your grandchild put tax-free compounding on their side.

For a great visual explanation of the difference saving early can make, take a look at the chart in this Fidelity piece on turbocharging our child’s retirement.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.