You know how that goes right? These days you just really have to go big, much bigger than last year to make it really special! I am really hoping that hoping she remembers this gift for the rest of her life, since I don’t think I’m going to be able to top it next year. So what about you, are you giving your child 50k for Christmas? Yeah, I’m sure that you just lost it thinking about who has 50k lying around to just give to their kids. Because if you had that money just lying around, I’m sure you wouldn’t just give it to your kids (Or it wouldn’t be lying around in the first place and all of it would have been spent on a new car, and maybe the leftovers would be used to pay off those student loans that you have been paying for years). Maybe that new car won’t happen today, but getting the 50k to give to your kids may not be as hard as you think.
I was reading the tax code the other day (please don’t silently judge my nerdy habits) and realized that you can open up a Roth IRA at any age. Roth IRA’s don’t give you a tax deduction now, but you will never pay taxes on the growth (Shocking right?). So that means my 14 year old can open one. Now 14 year olds don’t usually qualify because they need earned income. Well, being the slave driver—err—great parent that I am, I make the kids work. They mow the lawn, stuff envelopes for our business, and do other jobs around the house. All of that creates earned income, and that’s all you need to open an account.
Now let’s take that earned income, in this case call it $1,000, and open up an account. Not all brokerage firms will allow you to do this for a minor, but there are a handful that do. The $1,000 invested is tax free forever (or until the government changes the rules). By the time she turns 65, it will grow to $50,000. If she continues contributing over the next 4 years until she graduates high school, she will have $250,000 at retirement. If she picks a college that is $5,000 cheaper than what she wanted to go to, or gets that much more in aid, she walks away with a 1.25 million dollar retirement plan at 22. Yes, she will have to work and earn $5,000 a year. But seriously, don’t you wish you had a 1.25 million dollar retirement plan in place?
Think about all the things you spend on your kids, yeah I’m talking about those various thing that your child supposedly “had to have” but now lies unused in a corner, forgotten because something else has become more important. What if you took just a small part of that and set it aside for your child’s future? Wish you had awesome parents who would do that for you, right?
Now that you have been inspired to give, it’s my turn! Since its Christmas time, I am giving away a free financial coaching session! Email me now to schedule your 30 minute “Help Me Achieve Financial Freedom” planning session. It’s my gift to you this Christmas, but you only have until December 31, 2014 to email me at firstname.lastname@example.org
Disclaimer: I am not a tax professional (yet). Use this free advice with caution, and be sure to check with your tax advisor and investment advisor based on your unique situation.