As promised earlier in the month, we are now going to re-introduce you to Roth IRA’s, but this time, as great financial gifts for your lucky and hard-working children or grandchildren.  As I said earlier, there are very few investments which grow tax free, but 529 plans and Roth IRA’s do just that!
Many of you are familiar with Roth IRA’s, but for those of you that are not, here is a brief overview:    

Roth IRA’s were created by the Taxpayer Relief Act of 1997 to help Americans save for retirement.  These IRA’s have become enormously popular in the last 20 years but there are some important considerations:

  • The dollar contribution limits are the same for Roth IRA’s and traditional IRA’s.  Eligibility for a Roth IRA requires “earned income,” subject to an income cap which is not present for traditional IRA’s. 
  • Contributions are made with after-tax dollars, unlike those in traditional IRA’s or most company sponsored retirement plans.
  • Because the contributions are made with after-tax dollars, the contributions can be withdrawn at any time, without tax or penalty.  This might be important for young investors like your children or grandchildren who might need the money they invested before retirement.
  • Unlike traditional retirement plans, the earnings can also be withdrawn tax-free, subject to owner age and account duration rules, and there is no requirement for distributions to begin at any age.

As I said above, there is a requirement for the Roth IRA account holder to have “earned income” in order to be able to contribute BUT the actual contribution can be funded by anyone (YOU in this case) as long as the dollar amount of the contribution does not exceed the owner’s earned income or annual maximum allowed.

Head spinning?  How about an example?  You have a 19 year old grandson who worked over the summer stocking shelves in the middle of the night for Kroger.  He earned $2000 and will receive a W-2 from Kroger.  I am guessing he probably can’t invest this $2000 in a Roth IRA because he is saving every penny for college, BUT you can fund it for him.  You have until April 2026 to make this 2025 Roth contribution.  We will help you understand eligibility requirements and then help you actually pull this off.

Want to read more about Roth IRA’s?  See attached link. https://www.investopedia.com/terms/r/rothira.asp

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