Insights + Resources

Pay It Forward

Jan 20, 2023

Free Teach Education photo and pictureYou started early and have saved hard in your 401(k). You’ve also paid close attention to your investing strategy over the years. And you definitely understand the benefits of tax-deferred compounding over the long term and the potential for growth. Heck, you’ve even remembered to change your account password every 90 days. Maybe now it’s time to pay it forward and pass along some of your retirement savings wisdom and teach a younger generation!

How a Roth Custodial IRA Works

A Roth individual retirement account (IRA) may be a great way to instill the value of investing for a child or teenager with earned income (or grandchild, niece or nephew for that matter). This income could be from a dog-walking or babysitting job, regularly scheduled household chores or from a job that provides a W-2 form.1

The account is managed by a parent or another adult, such as a grandparent or uncle, on behalf of the child. The contribution limit for a Roth IRA in 2023 is the lesser of $6,500 or your child’s total compensation for the year.

Benefits of a Roth Custodial IRA

Once your child has earned income, it doesn’t matter where the IRA contributions come from. You may be able to entice your child to open an account by offering matching contributions from you or a grandparent or by funding the account up to the allowable amount. That way they will still have money left from their paycheck to go shopping or out with friends.
Once the Roth IRA is open for a minor, all assets are managed by the custodian until the child reaches age 18 (or 21 in some states). Given the tax bracket most teens are in, and the length of time they have to invest, a Roth IRA may provide the most potential long-term financial gain. Because of this, it’s important to stress to your child that using the money to help fund their retirement will likely be their most advantageous option. However, contributions are available anytime and withdrawals of earnings can be made penalty-free in some circumstances prior to age 59½. For example:
• Your child can withdraw money for college, to open a business or for other expenses.
• In addition, your child can withdraw up to $10,000 worth of earnings from the IRA, without a penalty, for the purchase of their first home.

The most powerful benefit of a Roth custodial IRA may be the potential for personal growth for a child or teenager. Getting an early taste of working life, in addition to learning about money and the power of saving, can be invaluable.

For more insights and resources, be sure to sign up for our Weekly Market Commentary. Follow our YouTube channel where we regularly post our Epic Market Minute videos. Follow us on LinkedIn, or like us on Facebook. And as always, please don’t hesitate to reach out to a dedicated service professional at Epic Capital.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

More Insights

Feb 1, 2023

Investment firms have a new client service requirement. They must now ask you if you would like to provide the name and information of a trusted contact.1 You do not have to supply this information, but it is encouraged. The request is made with your best interest in mind – and to lower the risk … Continue reading “Who is Your Trusted Contact?”

Jan 30, 2023

There’s a subjective uncertainty associated with financial wellness. Are you financially fit? And if so, how fit are you? While there is no clearly defined threshold for answering affirmatively, much less grading your level of fitness, there are baseline elements associated with financial fitness. To make sure that you’re on the right track, develop a … Continue reading “The Basics of Financial Fitness”

Jan 27, 2023

When you marry or simply share a household with someone, your financial life changes—and your approach to managing your money may change as well. The good news is that it is usually not so difficult.

Jan 25, 2023

Gold has climbed to a nine-month high after breaking out from a bottom formation last fall. The yellow metal is now up nearly 20% off the September lows, including over a 5% year-to-date gain as of Monday, January 23. The recovery in gold has primarily been fueled by a weakening dollar and fading market expectations … Continue reading “Market Update – Can Gold Continue to Shine?”

Jan 24, 2023

Do you work for yourself? Then you may want to consider the solo 401(k), which marries a traditional employee retirement savings account to a small-business, profit-sharing plan. To have a solo 401(k), you must either be the lone worker at your business or its only full-time employee.1

Insights + Resources >