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Started By
Message
Start a 529 or Roth IRA for my kids?
Posted on 8/21/24 at 8:37 am
Posted on 8/21/24 at 8:37 am
I have 2 kids and doing this later than I should. But better late than never I guess. I am putting 5K into each of their soon to be opened accounts next week sometime. I know Roth I can take out all of my deposits penalty free correct? Just can’t touch the gains from what I understand.
My kids are 12 and 10. So won’t have a ton of time to grow but I do plan on making regular contributions going forward to add as much to it as possible. And my thoughts are this isn’t to pay for college, but more to help assist. Bc they will either get tops or a scholardhip. If they can’t get tops and or a scholarship then I would strongly advise that college isn’t for them. They make good grades so we’ll see on that. Things could change in high school and that’s when it really counts.
I had $0.00 in my college fund when I graduated. So at the very least they’ll be better off than I was. TIA for any help here. Looking to set it up this coming week.
My kids are 12 and 10. So won’t have a ton of time to grow but I do plan on making regular contributions going forward to add as much to it as possible. And my thoughts are this isn’t to pay for college, but more to help assist. Bc they will either get tops or a scholardhip. If they can’t get tops and or a scholarship then I would strongly advise that college isn’t for them. They make good grades so we’ll see on that. Things could change in high school and that’s when it really counts.
I had $0.00 in my college fund when I graduated. So at the very least they’ll be better off than I was. TIA for any help here. Looking to set it up this coming week.
7
Posted on 8/21/24 at 8:52 am to Raygun
They have to have earned income to have Roth and you can only match up to the amount they make or 7k… are you paying them through a business? It can even be money from mowing yards but you have to prove they have income.
The 529 can be rolled into Roth, but they still have to have income then and follow contribution limits
I would do the 529. If you file married jointly, I think max is 4800 per year you can deduct from your state taxes.
The 529 can be rolled into Roth, but they still have to have income then and follow contribution limits
I would do the 529. If you file married jointly, I think max is 4800 per year you can deduct from your state taxes.
This post was edited on 8/21/24 at 9:16 am
Posted on 8/21/24 at 8:55 am to Raygun
I did a Roth IRA for my kids, simply because when I started it they were 6 and 2 years old, and who knows if they'll even go to college. In my mind it made sense then, they could use it for a house down payment or something else along those lines.
Posted on 8/21/24 at 8:58 am to jpainter6174
quote:
I did a Roth IRA for my kids, simply because when I started it they were 6 and 2 years old
How did you tell taxman they have earned income? I know people use their kids for advertising for their business and other loopholes. But they have to earn money and you can only match that income up to 7k.
This post was edited on 8/21/24 at 9:08 am
Posted on 8/21/24 at 9:15 am to Raygun
There is a lot to unpack, we recently just went through this. We have had 529s for some time for the kids, however it was do we continue or leverage other options.
One of the large items, what state are you in and what investment options do the 529s have. You may be very limited. In Texas we were able to invest in any other states 529. Roths are going to give you much more options to grow money.
There is a $7000 cap on yearly Roth contributions, and you are probably not going to hit 529 cap at $18,000.
You are not going to pay a penalty using Roth for qualified educational expenses, but will pay tax on any earnings used. 529 will be tax free for qualified educational expenses.
Short answer - Roth is going to give you more potential growth options, that may outweigh any tax implications.
Our 529s have grown the past year at 20% and 22%. All other accounts (IRAs, 401k, Stock) have out performed those numbers.
One of the large items, what state are you in and what investment options do the 529s have. You may be very limited. In Texas we were able to invest in any other states 529. Roths are going to give you much more options to grow money.
There is a $7000 cap on yearly Roth contributions, and you are probably not going to hit 529 cap at $18,000.
You are not going to pay a penalty using Roth for qualified educational expenses, but will pay tax on any earnings used. 529 will be tax free for qualified educational expenses.
Short answer - Roth is going to give you more potential growth options, that may outweigh any tax implications.
Our 529s have grown the past year at 20% and 22%. All other accounts (IRAs, 401k, Stock) have out performed those numbers.
Posted on 8/21/24 at 9:18 am to DaBeerz
quote:
How did you tell taxman they have earned income?
The Roth does not have to be in the kids name.
Posted on 8/21/24 at 9:21 am to DarthRebel
Little dated, but a cheat sheet
Posted on 8/21/24 at 9:22 am to DarthRebel
So can a person have more than one Roth in their name?
Posted on 8/21/24 at 9:31 am to DarthRebel
quote:
The Roth does not have to be in the kids name
What do you mean? You can’t transfer an IRA in your name to a child unless you die. Custodial account, child would still need income. I’m not a tax professional… my statements are from me researching the matter a lot for my kids.
I guess if you had account in your name, you could withdraw the contributions, gift them to a child and then they would deposit them into a new Roth account when they have income. But then you lose the compounding effect.
This post was edited on 8/21/24 at 9:37 am
Posted on 8/21/24 at 9:42 am to tiger91
quote:
So can a person have more than one Roth in their name?
Yes, but the contribution limit is universal and not per Roth. You can use your Roth to pay for kid's college expenses.
The kids Roth is different, and you can match what they put in. They have to have earned income though.
The best answer, use both your Roth and 529 if you want maximum college fund. Kids Roth is for their future and not college if you want to go there.
This post was edited on 8/21/24 at 10:03 am
Posted on 8/21/24 at 9:44 am to DarthRebel
I see..So you are just talking about removing contributions from your account to pay for expenses
Posted on 8/21/24 at 9:54 am to DaBeerz
quote:
I see..So you are just talking about removing contributions from your account to pay for expenses
Sorry for the confusion, but yes. Earnings can be used without penalty for qualified educational expenses as well, you will pay tax. Earning potential in Roth may outweigh tax though. 529s are designed for this, however have limited growth options.
Going with what you are talking about, when the kids do make money, that is a great option as well and does not impact your contribution limits. Other family members can also contribute to it. There are limits and rules though.
You can also rollover unused 529 to Roth IRA for kid. There is a current lifetime limit of $35,000 and you have to adhere to yearly contribution limits. If you had $35,000 left in 529, it would take you 5 years to move it all over.
This post was edited on 8/21/24 at 10:03 am
Posted on 8/21/24 at 10:06 am to DarthRebel
Thanks, that helps. I’m getting to the point in the next year or so where I will really be able to contribute more to mine and kids savings
This post was edited on 8/21/24 at 10:10 am
Posted on 8/21/24 at 10:26 am to Raygun
We have a UTMA account for our 1 year old as well as a 529.
You cannot do a Roth IRA for them unless they actually have earned income, usually this wont be until they are 16-ish and working somewhere part-time. Some people get around this if they own a business and say their kid has some kind of "Earned income" for something within that.
But I wouldnt do the roth IRA until they get that first job and just say you'll match whatever they make into a roth IRA that year. Will pay HUGE dividends for them when they ultimately retire.
If they made $3000 each year working 3 summers off from school for instance when they were 16, 17 and 18. You put $3000/yr into a Roth IRA for them each year. At 65 they will have somewhere around $1M if that just sat there in the S&P 500.
You cannot do a Roth IRA for them unless they actually have earned income, usually this wont be until they are 16-ish and working somewhere part-time. Some people get around this if they own a business and say their kid has some kind of "Earned income" for something within that.
But I wouldnt do the roth IRA until they get that first job and just say you'll match whatever they make into a roth IRA that year. Will pay HUGE dividends for them when they ultimately retire.
If they made $3000 each year working 3 summers off from school for instance when they were 16, 17 and 18. You put $3000/yr into a Roth IRA for them each year. At 65 they will have somewhere around $1M if that just sat there in the S&P 500.
Posted on 8/21/24 at 10:37 am to Raygun
529 now, if anything is left, roll into a Roth after they graduate and get a job.
Posted on 8/21/24 at 1:56 pm to Raygun
I have about 175k right now in a 529 for my 10 year old. Haven’t made much money in the fund. It is pretty conservatively invested. Not sure that I would do it again.
Posted on 8/21/24 at 1:57 pm to thunderbird1100
quote:
If they made $3000 each year working 3 summers off from school for instance when they were 16, 17 and 18. You put $3000/yr into a Roth IRA for them each year. At 65 they will have somewhere around $1M if that just sat there in the S&P 500.
That may be a trip to gulf shores by the time they turn 65
Posted on 8/21/24 at 5:48 pm to Raygun
529, if they dont use it for education you can rollover up to $35k (5 yrs of annula.contributions) into their Roth IRA after 15 years kick starting their retirement.
Posted on 8/21/24 at 11:40 pm to BigApple
quote:
I have about 175k right now in a 529 for my 10 year old. Haven’t made much money in the fund. It is pretty conservatively invested. Not sure that I would do it again.
Are you missing a period in there or something?
Why would you be upset with $175k in a 529 for a 10 y/o?
Posted on 8/22/24 at 1:50 am to DarthRebel
Thanks for all the replies. I am in Louisiana fwiw.
And I own a business. I don’t mind paying them for advertising or something along those lines and putting all that money into the Roth if that works. I’m assuming I can do it as 1099 income? Or would it need to be regular employee income where I withhold taxes?
And I own a business. I don’t mind paying them for advertising or something along those lines and putting all that money into the Roth if that works. I’m assuming I can do it as 1099 income? Or would it need to be regular employee income where I withhold taxes?
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