A:

The Roth IRA is hands-down the most attractive retirement plan available for people with at least 15 or more years until retirement, since it provides tax-free withdrawals if you wait to withdraw funds until after age 59.5. The smart thing to do is to start contributions while you or your children are very young, which allows compounded growth for possibly another 30-40 years before you/they would consider using the funds in retirement. The tricky part is convincing your teenagers or young adults to start saving early and meeting the requirements of earned income to qualify for IRA contributions.

So, how can you start a Roth IRA for your teenage daughter if she doesn't have a job with earned income? One option is to hire her at home within the family business (self-employed), as a file clerk or marketing assistant, for example. In this scenario, you can benefit twofold by receiving a deduction from business income, and you can make a contribution to your child's retirement. If you're not self-employed, you can still hire your child and pay them via W-2 or 1099-MISC income for cleaning the house or doing other odd jobs around the house - just make sure you document everything carefully, and put the pay directly into the Roth IRA. Since the child is working for the parents at home, no child labor laws are in violation.

Once your child starts gainful employment outside of the home or summer work between school breaks, you can still gift an amount equal to the Roth IRA contribution to the child and deposit this amount into a Roth account for them just as long as their compensation is equal to or greater than the gift.

For additional reading, check out Roth Or Traditional IRA...Which Is The Better Choice?and Roth IRA: Back To Basics.

This question was answered by Steven Merkel

RELATED FAQS
  1. If I am no longer employed, can I roll over a 403(b) plan into an IRA?

    Now that you are no longer working with the (former) employer that established your 403(b) account, you may roll your 403 ... Read Answer >>
  2. What are the risks associated with a Roth IRA?

    Like every retirement option, Roth IRAs have several associated risks. Consider all the major disadvantages before choosing ... Read Answer >>
  3. Can I return funds to my Roth IRA after I have taken it as a distribution?

    Yes. You can roll over the amount to the Roth IRA, or another of your Roth IRAs (excluding inherited Roth IRAs), provided ... Read Answer >>
  4. I am starting a limited liability company (LLC). I will be the sole member. Can I ...

    In a word, yes. A limited liability company (LLC) is eligible to establish a simplified employee pension (SEP). Keep in mind ... Read Answer >>
  5. Can a spouse who is not named as a beneficiary receive assets from an IRA?

    It depends.Generally speaking, the designation of beneficiary form dictates who receives the assets from the individual retirement ... Read Answer >>
  6. How do my siblings and I receive inherited pension benefit payments from our deceased ...

    Generally, the provisions of the plan document determine the distribution options available to beneficiaries of retirement ... Read Answer >>
Related Articles
  1. Retirement

    The Best Robo-Advisors for Beginner Investors

    There are a handful of robo-advisors that may be a good fit if you're just starting out. Here's a peek at one with no fees and no minimum investment.
  2. Investing Basics

    Why the Fiduciary Rule is Good for All Investors

    The new fiduciary standard should help lower what middle- and lower-income investors pay, on average, to brokers for retirement planning advice.
  3. Retirement

    3 Tax-Reduction Strategies for High-Net-Worth Investors

    Learn about three tax strategies that reduce taxable income and minimize the share of taxes paid on employer-sponsored and individual investment accounts.
  4. Your Practice

    The Impact of Fiduciary Rules on 401(k) Advisors

    The final version of the DOL’s fiduciary rule provides some relief for advisors who serve 401(k) plans.
  5. Retirement

    Why Designate a General Power of Attorney?

    Because it will ensure your financial and personal affairs are handled according to your wishes should you ever be incapacitated or unavailable.
  6. Taxes

    How to Use Your Roth IRA as an Emergency Fund

    Do you feel like you don’t have enough money to save for emergencies and also save for retirement? An often-overlooked feature of the Roth IRA could solve your problem.
  7. Investing News

    How the New Fiduciary Rule Will Impact Investors

    The DOL's new fiduciary rule is now in effect. Here are a few areas where individual investors, including clients and prospects, might notice some change.
  8. Investing Basics

    Six Things Bad Financial Advisors Do

    So you've gone to the trouble and expense of hiring a financial advisor. Here's how to decide whether they're doing you right or wrong.
  9. Investing Basics

    Closing In On Retirement? Read These Tips

    If you're within 10 years of retiring, you and your financial planner should heed these essential tips.
  10. Insurance

    Long-term Care Policies: Not All Created the Same

    All long-term care policies have unique advantages and disadvantages. Here's an overview.
RELATED TERMS
  1. Sequence Risk

    The risk of receiving lower or negative returns early in a period ...
  2. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
  3. See-Through Trust

    A trust that is treated as the beneficiary of an individual retirement ...
  4. Gold IRA

    Definition of Gold IRA
  5. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
  6. Provident Fund

    A compulsory, government-managed retirement savings scheme used ...

You May Also Like

Trading Center