| |
| |
|
|
Wealth Building Information |
|
|
|
Create Tax Savings And Transfer Wealth To Your Child With A Roth IRA
Parents must give serious thought to protecting their family through estate tax planning. While life insurance and trusts should be a part of every plan, Roth IRAs can be a simple tool for passing money to your child on a tax-free basis. Roth IRA First, we need a quick summary of the Roth IRA. A Roth IRA is an after-tax retirement vehicle that produces huge tax savings because all tax distributions are tax-free. That statement can a bit confusing, so lets break it down. The downside of a Roth IRA is the fact that contributions are not tax deductible as with traditional IRAs or 401(k)s. The upside of a Roth IRA, however, is that all distributions are tax-free once the person reaches the age of 59½. So how can you use a Roth IRA to pass money to your child? Opening A Roth IRA For Your Child One of the biggest keys to retirement planning is "time". The more years you spend saving money for retirement, the more you should have when that blessed day arrives. Imagine if you had started saving for retirement when you were 16. How much bigger would your retirement nest egg be? What if you purchased Microsoft stock in 1990 and watched it split eight times? Okay, that was painful example if you missed that opportunity. Nonetheless, why not do for your child what you didn't do for yourself? The fundamental goal of estate planning is to pass as much of your estate as possible to your family on a tax-free basis. You can transfer relatively small amounts of money to your child now. If you have a 16 year-old child with a Roth IRA, you can contribute $4,000 in 2005. That $4,000 is going to grow tax-free for 43 years and be worth quite a bit. A ten percent return would result in the account growing to roughly $200,000 and the full amount would be distributed tax-free. There are other practical advantages to opening a Roth IRA for your child. As a parent, it is vital that you teach your child the value of money. Opening a Roth IRA gives you the opportunity to sit down and teach your child the value of saving and investing, instead of yelling at them to clean their room. While a parental lecture on the need to save money would typically meet with glassy eyes and yawns, your child's attitude will undoubtedly change when you are talking about their money. Work and Maturity Issues Before you rush out to open a Roth IRA for your child, you must determine if your child is eligible to open an account. To open an account, your son or daughter must be working at least part time for an employer that reports their wages to the IRS. Hiring your child to take out the trash each week is not going to cut it, nor will this strategy work for your 5 year-old. Many teenagers, however, have summer jobs that should suffice for IRS consideration. To avoid any trouble, you should consult with your tax advisor. A more sublime issue concerns the maturity level of your child. Keep in mind that the Roth IRA will be opened in their name. Your son or daughter will have the legal right to do what they will with the account. It is strongly suggested that you clearly explain the consequences of taking money out of the account [taxes, penalties, being cut out of the will, forced to eat healthy food, grounded for life, etc.] but the decision lies with them. As difficult as it is, try to be objective in evaluating how you child will react to knowing the money is sitting in an account. If you have doubts, you should probably investigate other tax saving strategies. Opening a Roth IRA for your child can be a very effective means of transferring wealth to your child and teaching important life lessons. If your child exercises restraint, your relatively small contribution to their Roth IRA can grow into a sizeable tax-free nest egg. Richard Chapo is CEO of http://www.businesstaxrecovery.com - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review. He can be reached at richard@businesstaxrecovery.com.
MORE RESOURCES:
Wealth-Building - Google News |
|
|
|
RELATED ARTICLES
Rich or Poor - Get the Knowledge Most people work hard all their lives only to "retire" poor then try to live off meagre savings or a small (rapidly disappearing) Government pension. They are forced to live out their twilight years struggling with constant money problems. Cost Averaging - It Makes Sense (Dollars & Cents) It's no secret that the market goes UP.. Build Wealth - Formula To Success A mole travels one road, according to the way nature intended him; and a squirrel travels another. They cannot follow the same path to get ahead. Ben Franklin Didnt Quite Get it Right When Ben Franklin said "a penny saved is a penny earned", he didn't quite get it right. Actually, a penny saved is worth more than a penny earned. How Should I Create Passive Income? If you're wondering where to create passive income, then you are likely not alone. There are hundreds of different ways, however, so you're sure to find something that will work for you. The Hawk and the Mouse - Saving for Retirement There once was a hawk, ferocious and swift. He was young and agile with many years of life to hunt the open ranch lands. The Financial Equation that Will Set You Free! I have a good friend who works in an area of the US that has more than its share of poverty. He called me the other day with a very broken heart. Getting An Offshore Bank Account Via The Internet There is no need to use the many middleman websites you will find via a search engine. Most of these are *bogus*, even the slick-looking ones. Financial Freedom, Is It Only A Dream or Just Steps Away? Almost all of us go to work everyday and do the same routine over and over again. We work so hard until we caught up in the routines for years. Finding Financial Freedom Do you ever get this in your email box: Find Financial Freedom! Make $150,000 from home in the next 90 days! How about 10 times a day?Every time I get one of these, I think to myself, "Hmmm, Financial Freedom. I already have financial freedom, even though it doesn't look like what these emails promise me. What is Your Creative Retirement Plan? The idle are a peculiar kind of dead that cannot be buried." Oriental proverbOne thing is certain - when you do not have a creative challenge during your retirement years, the idleness and its accompanying despondency blots out any chance for happiness and contentment and can even encourage an early death. How to Save Money for Retirement Saving money for retirement can be easy or difficult depending on your current salary. If you are like 75 percent of the American population, earning just enough money in your current job to meet your monthly bills, then it's time to do some serious thinking on how you are going to live when you retire. Saving Money By Spending Wisely Why is it that the older and richer people become, the more conservative they are with their money? Have you ever done or know someone who has made an investment that promised a 10% interest or profit per month? Everyone wants to make above average profits. It is amazing how many people will send their very hard earned money across the world to Nigeria or to Boca Rattan, Florida on the promise of a telephone acquaintance to make them much richer. Who Wants To Be A Millionaire? Steve Martin once delivered an opening monologue for Saturday Night Live in which he answered the age-old question "How can I be a millionaire?" His answer was fairly simple and straightforward, "First? get a million dollars." If at this point you can't help but feel that Mr. Do You want to Live on Macaroni and Cheese when You Retire or Filet Mignon? How Much Money Will I Need to Earn to Retire?This is the most common concern of people who are contemplating retirement. While most financial planners would tell you that you need to earn as much in retirement as you did while you were working, this isn't always the case. 10 Wisdom-Based Wealth-Building Strategies "It's the business of your life?and you're the CEO!" Gala GormanImagine that you're Noah and God is telling you that you need to build the ark. You might suspect that Noah was a bit skeptical. Tax Help - Girls (and Guys) Just Want to Have Fun by Using Tax Saving Tips In his best selling book, "Rich Dad, Poor Dad, Robert Kiyosaki warns people against the dangers of buying what he calls "doodads" - you know, junk, spur of the moment items.Tax Secrets of the Rich Found HereThose things that you didn't know we existed until you read about them in an in-flight shopping catalogue and know that you know about them, you just can't live with out one. Four Pillars of Creating Wealth Some people in this world are thinking that their poor financial condition today is their destiny. They keep telling themselves that they'll never get rich in this lifetime. The Top 10 Steps to Extraordinary Personal Wealth I recently came across startling figures about the average American's finances. Only 4% of us have significant savings when we hit age 65, and a majority of Americans have less than $1000 in savings. Why You Need To Buy and Sell Gold Coins (Part 4) Top Investment PerformanceThroughout history, many coin collections have produced substantial long-term profits for their owners. This is particularly true for coin collectors of this century.
|
| home | site map |
| © 2006 |