Any strategies to ensure children keep Roth until retirement

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
masrepus
Posts: 88
Joined: Fri Apr 24, 2015 12:14 pm

Any strategies to ensure children keep Roth until retirement

Post by masrepus »

My oldest will be 16 next month and has a job lined up for the summer. I have told her if she invests in a Roth then I will match her 100%. The Roth is a custodial Roth at Fidelity so she will get control at 18. I actually think she will be OK and leave the money alone, understanding it's benefits and wanting to forgo penalties on taking out gains, but I want to do this with her younger siblings when they have jobs. I don't have the same confidence in their ability to hold the Roth.

She also has a UTMA at Fidelity and will get control of that at 21, if that adds any options. Not much in here so we tax gain harvest each year and don't hit tax reporting issues.

As of now, the strategy is just educating the kids on the benefits of the Roth: compounding benefits, tax advantaged, can be used for education and doesn't count for FAFSA when applying for college aid. And the ultimate that she gets 100% match. But is there anything else to help them keep it longer when they have control? I don't think we will receive need based aid for college, so maybe she holds the Roth until college is over and uses it to pay for the loans, though there won't be much in there for the contributions, can't use the gains without penalties. But that undoes the whole idea that you really want to keep a Roth for a long time to get the compounding benefits.
oldfatguy
Posts: 957
Joined: Tue Feb 27, 2018 1:38 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by oldfatguy »

Why is she getting control of one custodial account at 18 and another one at 21?
User avatar
samsoes
Posts: 1579
Joined: Tue Mar 05, 2013 9:12 am

Re: Any strategies to ensure children keep Roth until retirement

Post by samsoes »

I did the same thing for my (20's) niece, matching in an annual lump sum. I told her that if she ever removed any amount, even $1, all future matching funds from me will permanently cease. I verified the lack of withdrawals by annually inspecting the transaction history in her brokerage account, with her permission and in her presence (she logged in to it for me). She's a good kid, but as someone said once, "trust, but verify."

Once I'm below grass I won't have much say in what she does with the account...
Last edited by samsoes on Thu Apr 22, 2021 8:48 am, edited 2 times in total.
"Happiness Is Not My Companion" - Gen. Gouverneur K. Warren. | (Avatar is the statue of Gen. Warren atop Little Round Top @ Gettysburg National Military Park.)
User avatar
David Jay
Posts: 10807
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Any strategies to ensure children keep Roth until retirement

Post by David Jay »

A Roth IRA is, by definition, an Individual Retirement Account. Your daughter, upon reaching the age of majority is the individual. Not you.

If you want to maintain control, put the money in your own Roth.
Last edited by David Jay on Thu Apr 22, 2021 8:49 am, edited 1 time in total.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
retiredjg
Posts: 44021
Joined: Thu Jan 10, 2008 12:56 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by retiredjg »

Once they reach a certain age, children are going to to what they want. I don't think there are any strategies to ensure what you want. You can encourage and teach and all that, but...it may not work.
HomeStretch
Posts: 6246
Joined: Thu Dec 27, 2018 3:06 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by HomeStretch »

After educating your children about the benefits of a Roth IRA and transferring the custodial accounts into their name at the age of majority, there is not much more you can do/control aside from whether or not you continue to match. It’s their account to do with what they please. Hopefully they will take your advice to heart.
brian91480
Posts: 200
Joined: Fri Jan 29, 2021 7:44 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by brian91480 »

The matching is a good idea --- for present-day motivation. It means nothing for long-term.

For longer term motivation, run some spreadsheets showing what the current amounts would be with annual 7%, 9% 11% ROI's. Show her what the numbers would compound to over the next 40 years.

Then.... scare her to death.... with the truth. Project some bad-case scenarios of what income / capital gains taxes could be in 40 years because of our current national debt. (show her the national debt, explain why it is bad)

Take those really high compound totals.... and start slashing 30%, 40%, 50% off..... then tell her that current day law, all of her compounded money would be hers, with zero tax.

If she has any self control at all, she'll know not to touch that Roth!

--- Brian
User avatar
TomatoTomahto
Posts: 12406
Joined: Mon Apr 11, 2011 1:48 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by TomatoTomahto »

samsoes wrote: Thu Apr 22, 2021 8:46 am I did the same thing for my (20's) niece, matching in an annual lump sum. I told her that if she ever removed any amount, even $1, all future matching funds from me will permanently cease.
I call this the “verbal Crummey letter.” So far, it has worked. 🤞
I get the FI part but not the RE part of FIRE.
aristotelian
Posts: 9137
Joined: Wed Jan 11, 2017 8:05 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by aristotelian »

I think anything more than education and instilling/modelling good habits is probably going to cause more harm than good. What are you going to do, threaten to disown them if they spend the money?
oldfatguy
Posts: 957
Joined: Tue Feb 27, 2018 1:38 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by oldfatguy »

aristotelian wrote: Thu Apr 22, 2021 9:09 am I think anything more than education and instilling/modelling good habits is probably going to cause more harm than good. What are you going to do, threaten to disown them if they spend the money?
Agreed. Any attempt by my parents to exert any control of influences over my finances would have been ignored.
bloom2708
Posts: 8699
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Any strategies to ensure children keep Roth until retirement

Post by bloom2708 »

Too much 'Helicoptering'.

Imagine your kid is 55 and not yet retired and you are dead (sorry, just an illustration) and she needs to take $5k of Roth out for something.

Match if you want. Or don't.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
barnaclebob
Posts: 4448
Joined: Thu Aug 09, 2012 10:54 am

Re: Any strategies to ensure children keep Roth until retirement

Post by barnaclebob »

by the time she's worked until the end of the year and tells you how much she's saved up to put into the roth you'll know what her initial spending habits are with "real" money. Just make sure she knows the power of long term compounding, and that there are taxes and penalties for removing the money early.

So long as she doesn't get a "smart" boyfriend who convinces her that boomer index funds will never make her rich and to let him dump it all into some obscure crypto for her then she'll probably be fine.
illumination
Posts: 1416
Joined: Tue Apr 02, 2019 6:13 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by illumination »

If it's something you plan to keep on doing with ongoing contributions, you can always have this carrot and demand access and see what they're doing with it. But if they have bad financial habits, even a maxed out Roth every year won't save them for the long haul. They'll just drive up the debt in other places.

If you want more financial control of what you gift and limits on how it's spent, something like a trust makes more sense, it just doesn't have the same tax benefits.
Topic Author
masrepus
Posts: 88
Joined: Fri Apr 24, 2015 12:14 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by masrepus »

oldfatguy wrote: Thu Apr 22, 2021 8:43 am Why is she getting control of one custodial account at 18 and another one at 21?
No idea why I said 18. In our state UTMA transfers at 21. I probably just applied the Fidelity Roth rules that list the minor must be under the age of 18 to open a Roth IRA.
Topic Author
masrepus
Posts: 88
Joined: Fri Apr 24, 2015 12:14 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by masrepus »

Thanks everyone for the comments. I really appreciate the carrot ideas. That is a good plan to continue some form of matching at the end of the year for years they have continued with good habits. Very good idea and what I was looking for.

As most have noted, the idea is to encourage good habits now so they can see the benefits. And then hopefully continue when they are on their own. Of course things could change and they need the money, which is fine, but you want to foster the good habits and use the Roth to their best benefit rather than blow it.
User avatar
gwe67
Posts: 763
Joined: Mon Dec 23, 2013 9:52 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by gwe67 »

Gifted money is not earned income and can't be contributed to an IRA.
VTI 48%, VXUS 12%, BND 40%
Katietsu
Posts: 4845
Joined: Sun Sep 22, 2013 1:48 am

Re: Any strategies to ensure children keep Roth until retirement

Post by Katietsu »

There is also a matter that two reasonable people can disagree as to the best use of money. I would not have a plan that involves putting money in a Roth for 50 years from now while taking loans out now for college. I would not view unnecessary debt as a good habit.

When young adults are just getting started, a security deposit for that first apartment should be a priority, not retirement savings, IMO. The exception would be the minimum to get an employer match.
bloom2708
Posts: 8699
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Any strategies to ensure children keep Roth until retirement

Post by bloom2708 »

gwe67 wrote: Thu Apr 22, 2021 11:57 am Gifted money is not earned income and can't be contributed to an IRA.
If she earns $3,000 over the summer. Saves $1,000 and dad gives $1,000 match, she can put $2,000 in. The gift does not matter.

If she earns $1,000 over the summer. Saves $1,000 and dad gives $1,000 match, she can only put $1,000 in her Roth IRA.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
sailaway
Posts: 3136
Joined: Fri May 12, 2017 1:11 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by sailaway »

gwe67 wrote: Thu Apr 22, 2021 11:57 am Gifted money is not earned income and can't be contributed to an IRA.
As long as they earn as much or more than they contribute, it matters not one iota the source of the actual dollar put into the account.
User avatar
gwe67
Posts: 763
Joined: Mon Dec 23, 2013 9:52 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by gwe67 »

sailaway wrote: Thu Apr 22, 2021 12:06 pm
gwe67 wrote: Thu Apr 22, 2021 11:57 am Gifted money is not earned income and can't be contributed to an IRA.
As long as they earn as much or more than they contribute, it matters not one iota the source of the actual dollar put into the account.
It does matter. Gifted money is not earned income and can't be contributed to an IRA. She can only contribute from her earnings up to the maximum of her earned income or $6,000.

People like to use the word "match" but this isn't like an employer match of a 401k. This is a gift contingent upon the child contributing to the IRA.
VTI 48%, VXUS 12%, BND 40%
backpacker61
Posts: 658
Joined: Wed May 20, 2020 6:36 am

Re: Any strategies to ensure children keep Roth until retirement

Post by backpacker61 »

I think what you are doing is fantastic.

My parents helped me buy some shares of a Closed End Fund (CEF) in 1979 (there was no such thing as a Roth then).

I put in some money from my grocery store job, and they contributed some, also; for a graduation gift.

I began reinvesting dividends after I had been working full time in 1986. I'm still reinvesting dividends today; nearly 35 years later.

My parents are both dead now, but I'm very grateful to them for starting me on the path of delayed gratification and long term investing.
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies
delamer
Posts: 11271
Joined: Tue Feb 08, 2011 6:13 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by delamer »

gwe67 wrote: Thu Apr 22, 2021 12:35 pm
sailaway wrote: Thu Apr 22, 2021 12:06 pm
gwe67 wrote: Thu Apr 22, 2021 11:57 am Gifted money is not earned income and can't be contributed to an IRA.
As long as they earn as much or more than they contribute, it matters not one iota the source of the actual dollar put into the account.
It does matter. Gifted money is not earned income and can't be contributed to an IRA. She can only contribute from her earnings up to the maximum of her earned income or $6,000.

People like to use the word "match" but this isn't like an employer match of a 401k. This is a gift contingent upon the child contributing to the IRA.
You are wrong. Gifted dollars can be put into an IRA. We’ve done this every year for the last dozen years.

Gifted money does not count toward earned income, as you noted.

But the gifted dollars can be deposited directly into an IRA as long as the IRA owner has enough earned income to support the gifted amount.

Child earns $4000 as summer camp counselor; no other earned income. Parent writes check (from parental account) made out to IRA custodian for $4000 to be deposited in Child’s IRA account. IRA is therefore funded to maximum allowable given earned income of child for year. Child spends paychecks on a new computer, iPhone, and candy.

Completely allowable.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
User avatar
arcticpineapplecorp.
Posts: 7915
Joined: Tue Mar 06, 2012 9:22 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by arcticpineapplecorp. »

all you can do is teach and hope they get it.

without getting into the subject of inflation, taxation, or sequence of returns (also assuming taxable, not retirement acct), give the example:

1. Say you put $10,000 once the day the child is born in an investment acct in total stock market.

2. Say the market grows at 7.2% per year (so a doubling every 10 years).

3. By the time the child is 20 there's $40,169.43 in the account. =FV(.072,20,0,-10000)

4. Enough to buy a nice car, right? Say the child takes out the $40,169.43 at age 20 and buys the car.

5. The child knows the car is not going to last 50 years, but what if the child hadn't taken out the money but left it for another 50 years (continuing to compound at 7.2% doubling every 10 years)?

6. The money would then be worth $1,299,077.24 at age 70. =FV(.072,70,0,-10000)

7. The car didn't really cost $40,169.43. It cost the opportunity to have made another $1,258,907.81. That's really one expensive car isn't it?

If one doesn't understand this, I don't think there's any helping them. Unfortunately, it's not generally explained in these terms. Or people are very bad at delaying gratification.

as a postscript:

8. Due to the 4% rule, if the money was left alone and grew to $1,299,077.24 one could take out $51,963 every year for the rest of one's life.

Taking the money out at age 20 allowed ONE $40,169.43 withdrawal. But leaving it allows for $51,963 EVERY SINGE YEAR from 70 - 100 (at least).
Last edited by arcticpineapplecorp. on Thu Apr 22, 2021 3:18 pm, edited 2 times in total.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events.
Topic Author
masrepus
Posts: 88
Joined: Fri Apr 24, 2015 12:14 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by masrepus »

gwe67 wrote: Thu Apr 22, 2021 11:57 am Gifted money is not earned income and can't be contributed to an IRA.
Agreed. The matched money would not go to the Roth. I should have clarified that in the OP. The kid would contribute their earned income to the Roth. I would match that contribution and it can not go to the Roth. Really nice deal for them in that they don't really lose out. The idea is to make it easy to learn good habits.
delamer
Posts: 11271
Joined: Tue Feb 08, 2011 6:13 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by delamer »

masrepus wrote: Thu Apr 22, 2021 1:09 pm
gwe67 wrote: Thu Apr 22, 2021 11:57 am Gifted money is not earned income and can't be contributed to an IRA.
Agreed. The matched money would not go to the Roth. I should have clarified that in the OP. The kid would contribute their earned income to the Roth. I would match that contribution and it can not go to the Roth. Really nice deal for them in that they don't really lose out. The idea is to make it easy to learn good habits.
You can indeed write a check directly from your account to the IRA custodian for your kid’s IRA.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
User avatar
David Jay
Posts: 10807
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Any strategies to ensure children keep Roth until retirement

Post by David Jay »

gwe67 wrote: Thu Apr 22, 2021 12:35 pm
sailaway wrote: Thu Apr 22, 2021 12:06 pm
gwe67 wrote: Thu Apr 22, 2021 11:57 am Gifted money is not earned income and can't be contributed to an IRA.
As long as they earn as much or more than they contribute, it matters not one iota the source of the actual dollar put into the account.
It does matter. Gifted money is not earned income and can't be contributed to an IRA. She can only contribute from her earnings up to the maximum of her earned income or $6,000.
Sailaway is correct. Perhaps you did not read sailaway's post with enough comprehension.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
User avatar
bampf
Posts: 768
Joined: Thu Aug 04, 2016 6:19 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by bampf »

masrepus wrote: Thu Apr 22, 2021 1:09 pm
gwe67 wrote: Thu Apr 22, 2021 11:57 am Gifted money is not earned income and can't be contributed to an IRA.
Agreed. The matched money would not go to the Roth. I should have clarified that in the OP. The kid would contribute their earned income to the Roth. I would match that contribution and it can not go to the Roth. Really nice deal for them in that they don't really lose out. The idea is to make it easy to learn good habits.
I have a slightly different approach. I think that they should "lose" out.. The whole point behind saving is making a choice. Saving for the long term involves choosing to defer gratification. This method (yours) teaches the muscle of the behavior, but, doesn't really make it easier to defer gratification.

I take 25% of what they make until they are 18. It is the "dad tax" for driving them around, paying for their baby sitter class, etc. I then match it and put it in their utma account. Every month they get to see the balances and how they are growing. The conversation with my daughter last night was "I see you made more in returns on your investments than you did working this month. That is the definition of winning".

Not saying your method is wrong, I am saying I want my kids to understand not just the muscle memory of investing but also the challenge of choosing to invest and seeing the rewards of that behavior. They don't really get a choice until they are 18, but, after that, they do, and so far they continue to invest. And they know it isn't really a dad tax but rather helping them invest for the long term.

--bampf
oldfatguy
Posts: 957
Joined: Tue Feb 27, 2018 1:38 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by oldfatguy »

bampf wrote: Thu Apr 22, 2021 1:27 pm
I take 25% of what they make until they are 18.
"Take" it how? I'm pretty sure if anyone tried that when I was 16 or 17, there would have been a physical altercation.
tibbitts
Posts: 13605
Joined: Tue Feb 27, 2007 6:50 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by tibbitts »

bampf wrote: Thu Apr 22, 2021 1:27 pm I take 25% of what they make until they are 18. It is the "dad tax" for driving them around, paying for their baby sitter class, etc. I then match it and put it in their utma account. Every month they get to see the balances and how they are growing. The conversation with my daughter last night was "I see you made more in returns on your investments than you did working this month. That is the definition of winning".

--bampf
When they lose more month after month after month than they earned from working, do you tell them that's the definition of losing?
User avatar
bampf
Posts: 768
Joined: Thu Aug 04, 2016 6:19 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by bampf »

oldfatguy wrote: Thu Apr 22, 2021 1:48 pm
bampf wrote: Thu Apr 22, 2021 1:27 pm
I take 25% of what they make until they are 18.
"Take" it how? I'm pretty sure if anyone tried that when I was 16 or 17, there would have been a physical altercation.
Wow. Literal group here. I say, "Child, it cost me 1 hour of driving time and $75 to pay for your baby sitting class. Happy to do it, but, therefore you should give me $1 out of every $4 that you make. I will then invest that and match that on your behalf. See, child, we live in a world where things and time cost money. You should be aware of that. You are trading your time for money. I am also trading my time to help you make money." Child thinks about it for a bit and then realizes that this is reasonable and then also realizes that they would have to walk to their job if I didn't do it. Child then also recognizes that really I am not "taking" but helping.

Perhaps my choice of words was a bit blunt. All three of my children recognize it for what it is. If they ever were to push back hard about it (they haven't) then I would desist.

I don't think in my wildest dreams I would have threatened to have a physical altercation with my father.
User avatar
bampf
Posts: 768
Joined: Thu Aug 04, 2016 6:19 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by bampf »

tibbitts wrote: Thu Apr 22, 2021 2:04 pm
bampf wrote: Thu Apr 22, 2021 1:27 pm I take 25% of what they make until they are 18. It is the "dad tax" for driving them around, paying for their baby sitter class, etc. I then match it and put it in their utma account. Every month they get to see the balances and how they are growing. The conversation with my daughter last night was "I see you made more in returns on your investments than you did working this month. That is the definition of winning".

--bampf
When they lose more month after month after month than they earned from working, do you tell them that's the definition of losing?
I am unsure how to take this. Are you being snarky? I thought the intent behind investing for the future was to become financially independent and have your money work for you. Are there times when the market goes down? Yep. Of course. We talk about that as well. Over the long haul, for much of the world, it always has gone up. What else should I do? Or are you just digging at me?
oldfatguy
Posts: 957
Joined: Tue Feb 27, 2018 1:38 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by oldfatguy »

bampf wrote: Thu Apr 22, 2021 2:18 pm
oldfatguy wrote: Thu Apr 22, 2021 1:48 pm
bampf wrote: Thu Apr 22, 2021 1:27 pm
I take 25% of what they make until they are 18.
"Take" it how? I'm pretty sure if anyone tried that when I was 16 or 17, there would have been a physical altercation.
Wow. Literal group here. I say, "Child, it cost me 1 hour of driving time and $75 to pay for your baby sitting class. Happy to do it, but, therefore you should give me $1 out of every $4 that you make. I will then invest that and match that on your behalf. See, child, we live in a world where things and time cost money. You should be aware of that. You are trading your time for money. I am also trading my time to help you make money." Child thinks about it for a bit and then realizes that this is reasonable and then also realizes that they would have to walk to their job if I didn't do it. Child then also recognizes that really I am not "taking" but helping.

Perhaps my choice of words was a bit blunt. All three of my children recognize it for what it is. If they ever were to push back hard about it (they haven't) then I would desist.

I don't think in my wildest dreams I would have threatened to have a physical altercation with my father.
Different strokes, I guess. That's not something I would have agreed to as a teenager, nor is it something I would want to do with my kid.
sailaway
Posts: 3136
Joined: Fri May 12, 2017 1:11 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by sailaway »

gwe67 wrote: Thu Apr 22, 2021 12:35 pm
sailaway wrote: Thu Apr 22, 2021 12:06 pm
gwe67 wrote: Thu Apr 22, 2021 11:57 am Gifted money is not earned income and can't be contributed to an IRA.
As long as they earn as much or more than they contribute, it matters not one iota the source of the actual dollar put into the account.
It does matter. Gifted money is not earned income and can't be contributed to an IRA. She can only contribute from her earnings up to the maximum of her earned income or $6,000.

People like to use the word "match" but this isn't like an employer match of a 401k. This is a gift contingent upon the child contributing to the IRA.
Correction: gifted money is not earned income and does not factor into how much can be put into and IRA. The IRS will compare earned income to the contribution. They will not track the path of the money that ended up in the IRA.
Normchad
Posts: 2340
Joined: Thu Mar 03, 2011 7:20 am

Re: Any strategies to ensure children keep Roth until retirement

Post by Normchad »

It sounds like you’re saying “hey kid, if you put $X into a Roth IRA, I will give you a replacement $X so it really costs you nothing”.

I did that with my kid too. So obviously I think it’s a great idea. Education really is the key. I’m sure she will be fine.

I opened the account for the kid, and put the money in there myself every year. She wouldn’t be able to screw it up, because she didn’t know where it was. When she graduated college, I turned over all the account credentials to her..... I’m planning to continue doing the match with her for as long as I can afford it.
KlangFool
Posts: 20545
Joined: Sat Oct 11, 2008 12:35 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by KlangFool »

masrepus wrote: Thu Apr 22, 2021 8:33 am
My oldest will be 16 next month and has a job lined up for the summer. I have told her if she invests in a Roth then I will match her 100%. The Roth is a custodial Roth at Fidelity so she will get control at 18. I actually think she will be OK and leave the money alone, understanding it's benefits and wanting to forgo penalties on taking out gains, but I want to do this with her younger siblings when they have jobs. I don't have the same confidence in their ability to hold the Roth.
masrepus,

Why is that a problem? Won't you want to find out whether the younger siblings could keep the money in the Roth while you are alive? Isn't it better to test and find out how your kids manage money while you are alive? Isn't it better for them to make mistake with a smaller amount of money versus wasting away any money that they might inherit from you?

You cannot teach someone how to manage money until they managed their own money.

Both of my kids had saved and invested 20K to 30K of their own money since high school. They were given a few hundred and up to a thousand every year since they were born. They were free to use the money in whatever fashion. We believed in letting our children learn to manage their own money and make their own mistake. It is cheaper and better for them to make the mistake earlier and younger.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
KlangFool
Posts: 20545
Joined: Sat Oct 11, 2008 12:35 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by KlangFool »

Folks,

My kids saved and invested 20+K while they were in high school. They worked summer in a restaurant. After all the taxes and deduction, their portfolio earned a lot more than their summer job that year. I believed that taught them a very important lesson.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
lazynovice
Posts: 1150
Joined: Mon Apr 16, 2012 10:48 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by lazynovice »

We matched for our kids in Roth in high school. We put it in a total stock market index fund. I wanted them to learn about Roth accounts, index investing and leaving the account alone for decades. I guess the lesson worked because neither one ever looks at their account. Sometimes feels like they are not learning about investing at all though.

I stopped matching when they got an employer who matched. But I still help them with other things.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
goblue100
Posts: 1296
Joined: Sun Dec 01, 2013 10:31 am

Re: Any strategies to ensure children keep Roth until retirement

Post by goblue100 »

Normchad wrote: Thu Apr 22, 2021 6:26 pm It sounds like you’re saying “hey kid, if you put $X into a Roth IRA, I will give you a replacement $X so it really costs you nothing”.

I did that with my kid too. So obviously I think it’s a great idea. Education really is the key. I’m sure she will be fine.

I opened the account for the kid, and put the money in there myself every year. She wouldn’t be able to screw it up, because she didn’t know where it was. When she graduated college, I turned over all the account credentials to her..... I’m planning to continue doing the match with her for as long as I can afford it.
This is essentially what I did with my daughter. She understands it is for retirement. I have no worries she will cash it in and buy a weed farm in Colorado, or something. She has the credentials but I don't think she ever even checks on it.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns
getthatmarshmallow
Posts: 860
Joined: Mon Dec 04, 2017 9:43 am

Re: Any strategies to ensure children keep Roth until retirement

Post by getthatmarshmallow »

You want to teach your kid good judgment so she can be a proper steward of her IRA. But you undermine that with a rule that says don't ever touch the IRA. (Besides, there are scenarios where withdrawing from the Roth is the better choice.) Why not make the case to her instead?
pasadena
Posts: 1090
Joined: Sat Jul 02, 2016 1:23 am
Location: PNW

Re: Any strategies to ensure children keep Roth until retirement

Post by pasadena »

Educate your kids, then when they're adults... treat them as such. Provide advice and help, and let them make their own informed decisions.
Normchad
Posts: 2340
Joined: Thu Mar 03, 2011 7:20 am

Re: Any strategies to ensure children keep Roth until retirement

Post by Normchad »

goblue100 wrote: Thu Apr 22, 2021 6:58 pm
Normchad wrote: Thu Apr 22, 2021 6:26 pm It sounds like you’re saying “hey kid, if you put $X into a Roth IRA, I will give you a replacement $X so it really costs you nothing”.

I did that with my kid too. So obviously I think it’s a great idea. Education really is the key. I’m sure she will be fine.

I opened the account for the kid, and put the money in there myself every year. She wouldn’t be able to screw it up, because she didn’t know where it was. When she graduated college, I turned over all the account credentials to her..... I’m planning to continue doing the match with her for as long as I can afford it.
This is essentially what I did with my daughter. She understands it is for retirement. I have no worries she will cash it in and buy a weed farm in Colorado, or something. She has the credentials but I don't think she ever even checks on it.
Good point. I’m a big fan of making mistakes. It’s basically the only way I learn.

So,I want my kids to make mistakes. And go make them early, when the consequences are small. If my 20 year old drains $5K from the Roth and blows it in weed, that’s a costly mistake. But it’s possibly a very worthwhile one to make, as the regret of doing that might keep them from ever making a similar mistake. It’s a lot of money to them at the time, but almost negligible in the long run.

Or another way I guess, if you can’t trust your kid with their Roth, than they probably have much bigger problems, and this one won’t matter much.

Education is huge. The kids know I don’t expect them to do what I say. But I am grateful that they always listen and think things through before making their own decision. And that’s what I really want, I want them to know how to listen, how to reason, how to make decisions, and how to live with the outcome, whatever it may be.

Plus, I’ll be long dead before it comes time for them to tap the Roth.
ChrisC
Posts: 985
Joined: Tue Jun 19, 2012 9:10 am
Location: North Carolina

Re: Any strategies to ensure children keep Roth until retirement

Post by ChrisC »

bloom2708 wrote: Thu Apr 22, 2021 9:21 am Too much 'Helicoptering'.

Imagine your kid is 55 and not yet retired and you are dead (sorry, just an illustration) and she needs to take $5k of Roth out for something.

Match if you want. Or don't.
Nah, this is parental lawn mowing. https://www.healthline.com/health/paren ... s-and-cons.

But the simple solution to the predicament the OP believes he's in would be to set up an Roth IRA in the child's name (and fund it to the extent of
the match he would like to contribute) and don't disclose the specific custodial Roth IRA information to the child. You can tell the child that you're going to fund this account and when she reaches 59.5 you'll provide her the information she needs to access the account.

I actually know a few lawn mowing parents, now ages 76 and 74, who set up Roth IRAs for their children when they started earning income a number of years ago when they were 18 -- they've kept funding these Roth IRAs for the last 15-17 years without telling their children -- with the idea that if they ever told their children about the Roth IRAs the children would empty the accounts in a nano-second. They didn't think it would be more appropriate to teach their children, now adults, basic financial literacy. Of course, when these parents are no longer around the kids will probably still empty these accounts in a nano-second. :oops:

I'm with Klang Fool here -- children should be given the opportunity to fail and learn from their mistakes. It wouldn't harm them to let them fail in this case.
sailaway
Posts: 3136
Joined: Fri May 12, 2017 1:11 pm

Re: Any strategies to ensure children keep Roth until retirement

Post by sailaway »

ChrisC wrote: Thu Apr 22, 2021 8:00 pm
bloom2708 wrote: Thu Apr 22, 2021 9:21 am Too much 'Helicoptering'.

Imagine your kid is 55 and not yet retired and you are dead (sorry, just an illustration) and she needs to take $5k of Roth out for something.

Match if you want. Or don't.
Nah, this is parental lawn mowing. https://www.healthline.com/health/paren ... s-and-cons.

But the simple solution to the predicament the OP believes he's in would be to set up an Roth IRA in the child's name (and fund it to the extent of
the match he would like to contribute) and don't disclose the specific custodial Roth IRA information to the child. You can tell the child that you're going to fund this account and when she reaches 59.5 you'll provide her the information she needs to access the account.

I actually know a few lawn mowing parents, now ages 76 and 74, who set up Roth IRAs for their children when they started earning income a number of years ago when they were 18 -- they've kept funding these Roth IRAs for the last 15-17 years without telling their children -- with the idea that if they ever told their children about the Roth IRAs the children would empty the accounts in a nano-second. They didn't think it would be more appropriate to teach their children, now adults, basic financial literacy. Of course, when these parents are no longer around the kids will probably still empty these accounts in a nano-second. :oops:

I'm with Klang Fool here -- children should be given the opportunity to fail and learn from their mistakes. It wouldn't harm them to let them fail in this case.
FYI, not only is this questionable parenting, it is probably illegal - these accounts become the property at a child by default at a certain age, so the parent is likely committing identity theft to maintain the accounts under their own control.
Post Reply