Its never too early to start retirement savings….

Posted on August 11, 2011


If your child or grandchild is busy toiling at a summer job this year, consider making a payin to a Roth IRA for him or her. You can contribute up to $5,000, but not more than the child’s earnings. But what you put in counts toward the $13,000 annual gift tax exclusion ($26,000 if your spouse concurs).  The payin can help provide a nice nest egg.

A $5,000 contribution to a 16-year-old’s Roth that earns 8% each year will grow to $217,000 at age 65 and $319,000 at age 70. If the child works for a few summers and contributions are made each year, the future balance in the account will be significantly larger.

Roth IRAs have some important tax advantages. Beyond the appeal of tax-free withdrawals after 59½, in the short term, the child can pull out payins free of tax. That can come in handy to help when purchasing a first home.

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