Many young adults open Individual Retirement Accounts (IRAs) when they begin receiving paychecks from their first job. Did you know, IRAs are a great retirement tool for younger children? Since children have many decades to save, they can take full advantage of systematic savings and the power of compound interest, along with the tax advantages of an IRA. Children can have IRAs!
As long as your child has earned income, he or she may contribute to an IRA – regardless of age. Let’s pause for a moment and think about this…Do you pay your minor children or grandchildren to work in your business? If so, these funds or a portion may be added to an IRA and used as a savings vehicle. Wow!!
There are two types of IRAs for children: traditional & Roth.
Traditional IRA – you pay taxes when you withdraw the funds at retirement. The contributions and interest accrued are pre-tax. Required minimum distributions begin at age 59 1/2.
Roth IRA – you pay taxes on the funds upfront. The contributions and interest are after-tax funds. No minimum required distributions.
Opening an IRA for your children and grandchildren is a great way to build wealth and save for retirement. Plus, you can teach your children how to save and show them the benefits.
Want to learn more? Schedule a consultation call.
