Entrust Learning Center > Keyword: investment > Leaving a Legacy of Saving

Leaving a Legacy of Saving

As a father of four, Im well aware of the cost of parenthood from diapers to college and the uncomfortable

By: Glen Mather

teen years between. Yet the greatest obligation of all is to leave a legacy with your children that will long outlive you and your ability to provide for them.

Fact is, we hail from a country that is filled with non-savers, and it’s not likely that any of our progeny will casually acquire the ability and aptitude to invest. Passing on the power of investment can be one of the most important lessons learned and will impact your child throughout their lifetime. Having that investment grow tax-free is even better.

Can a minor have an IRA? Absolutely – just two rules apply. First, the minor must have a Social Security Number (can be obtained shortly after birth) and have earned income. Well, how can a five-year old earn income?

Perhaps you have your child (or grandchild) provide modeling services – and pay them for their work. Up to $4,000 in earnings can then be contributed by the minor into a Traditional or Roth IRA. Just make sure that the employment that you are providing to the minor is legitimate. Paying the child for doing chores will likely not qualify.

The choice of funding a Roth is especially powerful as the money will grow tax-deferred until the child reaches age 59.5 – then can be distributed tax-free. With a self-directed IRA, the parent can partner their child’s investment with their own – or simply direct the child into the over 40 categories of investments that Entrust provides.

Assuming an 8% annual return (which is not unusual for self-directed investors) and a contribution of $4,000 per year until the child reaches 18, due to your forethought, the child may be able to retire early:

Total contributions from year one to eighteen: (18 x $4000) = $72,000

Gross earnings year one to year 55 = $2,511,412

Total retirement nest-egg at age 55 = $2,583,412

So, without further contributions from your child and assuming that they continue to self-direct their plan wisely, at age 55 they would have over $2.5M in their account that would be taxed only upon withdrawal.

Better yet, if the plan account was a Roth IRA, then the same funds would be available to your child tax-free at age 59.5.

Bottom line – while you are busy planning for your self directed retirement plan, don’t forget to invest in your child’s future. It’s easier than you think as they may be able to partner with your IRA and benefit from the due diligence and investment choices you make. It will be one of the best legacies that you provide to your children or grandchildren.

Glen Mather is Director of Entrust Administration Services, Inc. serving East and Central Florida.

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