We all want what’s best for our kids, but what if I told you that with a few simple steps, you could help retire your kids as millionaires? We have all heard the term “time is money”, and that is no different when it comes to retirement investing. Any investor will tell you, the earlier you start investing, the better. But how do we help our kids invest in retirement? Don’t they have to be an adult to start investing? How much do you actually need to invest to help them get ahead? Let’s dive in.
At what age can my child start investing in retirement? Investing basics to retire your kids as millionaires.
The short answer, as soon as your child has earned income, they are eligible to invest into a retirement account. Simply put, earned income is defined as wages or commissions you receive for your labor or work. While sometimes it is uncommon for young kids to have earned income, with a little bit of creativity, it’s actually not that hard to do. Our five year old is now at the age where she is able to work around the house or farm for a little bit of extra cash. Since we are able to cover all of her expenses at this age, she can invest 100% of her income into a Roth IRA. (*Note: allowance does not count as earned income, they will need to earn money for specific jobs and/or tasks).
How it Works- Retiring your kids as millionaires
Because your child is most likely under the age of majority, the type of Roth IRA you open will be in a custodial account. This basically means that you will be in charge of monitoring and overseeing the account until they reach 18 (or become an adult). Luckily, nowadays this is super simple to do. If you go to Google and search “open a custodial Roth IRA” you will be filled with a plethora of options. We chose to open ours through Fidelity because they allow us to contribute using a credit card without fees. This is important to us because we are earning points on investing, which is pretty amazing. (*We are not affiliated or associated with Fidelity.*)
How much do they need to invest?
How much do you need to invest to retire your kids as millionaires? Simple answer, it depends. Because investments are able to grow at such exponential rates, the younger you are able to start your child, the better. Our daughter started when she was 4 years old, and by beginning her account with $1000 and investing $100/month, this is what she should have when she hits age 55 (if she choses to retire early).
Just to compare and show you the time-value of money, here is the same retirement account if she continues to invest $100/month and retires at 65 instead of 55:
As you can see, the younger they can start and the more time their money has to grow, the better off they will be. It is also important to note that once a child hits 18 the custodial account will be transferred into their name. It’s your responsibility as a parent to make sure they understand the importance of continually investing into their account.
If you want to play around with retirement calculators to see where you want to start, this it the one we use! https://www.ramseysolutions.com/retirement/retirement-calculator (*Disclaimer- we have no affiliation with Ramsey Solutions, however their calculators is one of the only ones out there who let you type in the beginning age under 18).
Time to Get Started!
That is pretty much it, step-by-step on how to retire your kids as millionaires! After messing around on a few retirement calculators, find a reputable agency to open custodial Roth IRA and help your kids straight on their path to financial independence! For more investment tips follow along here -> https://mamasmoneymoves.com/category/investing/
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