Custodian Roth IRA account for kids

[Liar Loan]

529 to Roth has some restrictions, but the scheme being proposed by you guys is not legal.

Also, for the Roth for kids, I keep a paper/spreadsheet log of kids earnings (can't be chores/allowance; think babysitting or dog walking for neighbors or anything you yourself might hire someone else to do) once they turned 12. I 100% match their earnings as a deposit into their Fidelity custodial Roth accounts (so they retain their earnings in whole).

My plan is to have the kids max out the Roth IRA and 401ks as soon as they start working. I can always help supplement their income if needed to ensure they fund both as soon as they start working.

Roth contributions are supposed to come from earned income, not gifts from parents. You are asking the IRS to believe that a kid who worked from age 8-18 never once spent money on themselves, but instead worked for all those years to contribute 100% to their retirement. It's not believable. Doesn't pass the smell test.

 

[qwerty]

@liarloan - the money doesn’t need to come from the kids wages. It can come from parents, grandparents etc. the kid just needs to have earned income.

From the fidelity link below: “Convincing a child to hand over his or her hard-earned cash to invest in a Roth IRA may be challenging but remember that as long as the child has earned income to qualify for Roth IRA contributions it doesn’t matter where the contributions come from.”

Custodial Roth IRA: Your guide to Roth IRAs for kids | Fidelity

Learn how parents, grandparents and other family members can jumpstart their children's retirement including custodial Roth IRA.

www.fidelity.com

 

[qwerty]

Supplementing your kids income for them to max out 401k and Roth contributions is not illegal.

 

[momopi]

There's a lifetime limit of $35,000 on 529 to Roth IRA conversion.

The annual IRA contribution limit is $7,000. This includes 529 to Roth IRA conversion:

Understanding 529 rollovers to a Roth IRA

529 beneficiaries can convert a portion of unused funds to a Roth IRA starting in 2024.

www.fidelity.com

To have $60,000 in Roth IRA by age 18, you'd need to contribute $7,000/year to the child's IRA account from age 10-18?

 

[daedalus]

We opened a UTMA for my daughter when she was 1. I picked the UTMA since I didn't know if she would go to college, and as LL mentioned, I figured we ain't gonna qualify for any need-based FA anyway. This was before the Roth rollover change so I need to investigate that, as that seems like a winner as long as you guess right and don't compound over the cap. She's now 8, and our tax person says we're better off with her having her own tax return at this point, just from the passive income.

 

[momopi]

Here's a couple useful charts:

A comparison of investing in top 50, 100, 200, 500, and 1000 stocks on the S&P 500:

https://www.portfoliovisualizer.com/fund-performance?s=y&sl=7AFcnMUsxfXxnY1iyaUhvf

A comparison of bonds/stocks portfolio models and average returns:

Investment portfolios: Asset allocation models | Vanguard

Your investment portfolio allocation should align with your financial goals. Learn how to allocate investments in your portfolio.

investor.vanguard.com

 

[momopi]

Sorry guys, I left my compound interest calculator on monthly instead of annually. Since we're talking about S&P 500 with annualized average returns of 10.2%, the compound interst calculation should be set to annual and not monthly.

Using my earlier example, if I put $100/month into an account for 14 years with annual returns of 10%, the account will have $33,569.98.

Leaving the sum in the account for another 45 years with no additional contribution, the account will grow to $2,446,932.08.

If you're willing to accept higher risk, the S&P top 50 ETF may offer higher returns than S&P 500.

 

[momopi]

Vanguard College Cost estimator has list of schools and their costs:

Vanguard college cost projector

When you click on "Look up cost" you can select State, in-state/out-state tuition, tuition only or tuition + room and board costs.

Though I have questions regarding "out of state" tuition calculations. If you reside in state for 12 consecutive months, you should qualify for in-state tuition?

 

[GrowthStateofMind]

There's a lifetime limit of $35,000 on 529 to Roth IRA conversion.

The annual IRA contribution limit is $7,000. This includes 529 to Roth IRA conversion:

Understanding 529 rollovers to a Roth IRA

529 beneficiaries can convert a portion of unused funds to a Roth IRA starting in 2024.

www.fidelity.com

To have $60,000 in Roth IRA by age 18, you'd need to contribute $7,000/year to the child's IRA account from age 10-18?

Hoping they raise that lifetime limit every few years. $35k will be nothing in 10-18 years if inflation keeps up especially with college tuition

 

[momopi]

Hoping they raise that lifetime limit every few years. $35k will be nothing in 10-18 years if inflation keeps up especially with college tuition

I think for 529 to Roth IRA rollover, we are looking at 40-45 year horizon for the IRA account.

$35,000 invested in S&P 500 index with 10% annual returns for 45 years will yield $2,551,167

I spoke with my cousin about setting up custodian Roth IRA, he says they won’t bother and will just contribute more money into 529 plan with intent to rollover max allowable later (their daughter is 1).