The Roth IRA is my favorite investment vehicle (if you don’t believe me then check out Starve the Doubts episode where I nerd out on this topic). If you are looking to put money aside, then this is the place for you.
If you don’t know what a Roth IRA is let me explain quickly or you can check out my previous article. A Roth IRA is a a retirement account you open up as an individual. The money you contribute is after taxes and you never have to pay taxes on the money again as long as you don’t withdraw it until age 59 1/2.
I think every parent should consider investing into a Roth because it is so powerful and flexible. Here are five reasons I think every parent should contribute to a ROTH IRA.
1) Income Limits
There are income limits on whether the government allows you to contribute to a Roth IRA. In 2015, the government won’t allow families (married filing jointly) who make more than $183,000 make a full contribute to a Roth IRA. If you earn more than $193,00 then you can’t contribute to a Roth at all.
You may not make nearly that much money, but I assume everyone who reads my site wants to make that much money some day. If you are looking to be a high earner, then make the contributions now before it is too late.
2) Access to Contributions
You always have access to contributions. This may sound crazy, but it’s true!
If you contribute $5,000 to a Roth IRA and it grows to $7,000 in two years, you can still take your $5k without taxes or penalty. However, you may be taxed and penalized on the growth if you were withdraw it before age 59 1/2.
3) No Required Minimum Distributions for Roth IRAs
In a Traditional IRA or 401(k) plan the government requires you start withdrawing money by age 70 1/2. They want you to do this because they have never received tax revenues from you on this money.
With a Roth there are no required minimum distributions. You can keep the money in the account until you die and allow it to grow without being taxed. This can really build up a great inheritance for your children.
4) No Taxes for Beneficiaries
If you never withdraw the money from your account, then your beneficiaries will receive the money tax free! That’s HUGE!
The best thing about this is your children never have to withdraw either! This can create a huge some of money!
5) Your Children Can Open a Roth IRA
There are no age restrictions on opening a Roth IRA. The only thing that is required is earned income.
This means if your children cut grass, baby sit, or have a lemonade stand they can contribute 100% of their earned income.
Let’s assume your 14 year old contributes $2,000 a year for 11 years in a Roth and never contributes again. She then lets’ the money sit there until she turns 65. If she earns 8% a year, then she would have over $723,000 in her account tax free!!!
Go out an open a Roth Today!