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Make Your Child a Tax-Free Millionaire!

Nathan Biggs
July 20, 2023

Do you want to jump start your child’s retirement with a million dollar, tax-free account? Consider this:

The Million-Dollar Idea

As soon as your child begins earning income, open a Roth IRA and set a contribution goal to reach before they graduate from high school. Assuming an 8% expected rate of return, the investments made by age 19 will grow to FORTY times its value by the time they reach 67 (current full retirement age). For example, $2,500 invested before graduation will be $100,000 at retirement. If you can bump that up to a $25,000 investment before graduation, it will be worth $1 million at retirement!

Why it Works

Compounding interest occurs when interest is earned based on the interest generated from the initial contribution. Meaning the more time the investment has to grow, the more exponential growth will occur. By starting to save prior to graduating from high school, the investment will have almost fifty years of compounding growth.

Even better, while contributions to Roth IRAs must be after-tax contributions, any earnings are TAX-FREE as long as the rules are followed! Simple to say, but how do you get $25,000 into a child’s Roth IRA? Here are some tips.

Tips to Achieve the Goal

Hire your child. Roth IRA contributions are limited to the income your child earns. If you own a business or make some money on the side, consider hiring your child to help with cleaning the office, filing, or other tasks they can handle.
Look for young-age work ideas. Babysitting, yard work, walking pets, shoveling, and lawn work are some of the ways to get your child earning an income at a younger age. Cash-based income is harder to prove, so don’t forget to keep track of the income and consider filing a tax return, even if not required.
Leverage high school years. Ages 15 through 18 is when your child has their highest earning potential before graduation. Summer jobs, internships, and part-time jobs during the school year can produce a consistent income flow to contribute to their Roth IRA and still provide spending money.
Parent or grandparent matching idea. The income earned by your child doesn’t have to be directly contributed by them to the Roth IRA – it simply sets the contribution limit. Make a deal that for every dollar of income your child saves for college, a parent or grandparent contributes a matching amount to their Roth account. It can be a college and retirement savings plan in one!

Helping your child get a head start on saving should ease any anxiety regarding retirement and help them focus on school, starting their career, and other personal development goals.

As always, should you have any questions or concerns investing for your child please feel free to contact us.

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