June Key Focus
Building Your Childís or Grandchildís IRA
Many individuals donít know or understand the benefits of IRAs
or saving for retirement.
One of the best ways you can help your children or grandchildren
learn about investing for their future is to share your own
experience. You know the value of a good retirement nest egg,
but kids just donít think of those things. You probably didnít
either when you were younger. By sharing your experience, by
having your child or grandchild start saving early, and by
making it fun, they will see the value (Editorís Note: Ed Slottís
new book, Fund Your Future, talks about this topic and
provides a detailed plan to get you there).
You can begin by telling your children and grandchildren about
the value of preparing for retirement by making wise investments
through a traditional or Roth IRA. A Roth IRA is particularly
well-suited for younger individuals. Children or grandchildren are
not interested in, or need, an income tax deduction for a
contribution to an IRA. A Roth IRA has the ability to grow over
the years on a tax-free rather than tax-deferred basis.
As your children or grandchildren mature and are able to
understand some of the basics of investing, explain what you have
done to grow your own IRA wealth. Your flourishing retirement
account may be the best means of teaching your kids the value of
smart investing and spurring them to build their own nest egg.
An IRA contribution must be based on the taxable compensation
(earned income) of the individual for the year of the contribution.
Compensation is income received for personal services rendered.
Passive income, such as income from investments, is not
considered for the purpose of making an IRA contribution. You
can use this chart to see the 2012 IRA contribution limits.
If your child or grandchild has a part-time job, that money can
be claimed as earned income. In these cases, you can even make
monetary gifts to them, up to the amount they earned during the
year, to help them fund their IRAs. Then, for each one, using their
Social Security number, open an IRA in their name, designate an
appropriate beneficiary and start watching it grow. Yes, they may
be young, but each IRA owner should always have a beneficiary.
Follow this beneficiary form checklist.
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