blog updates

Follow KSM
Search

KSM blog

KSM Blog | Katz, Sapper & Miller CPA

Turning a Summer Job into a Future Nest Egg

Posted 7:55 PM by

Do you have a child or grandchild with a summer job? If so, you may want to consider contributing to a Roth IRA for him or her this year.  A contribution can be made up to the child’s annual income, not to exceed $5,000 in keeping with the 2012 Roth IRA contribution maximum (not subject to adjusted gross income phase out).

Why a Roth?  After the age of 59 1/2, all withdrawals are made tax-free, and the contributions (not earnings) can be withdrawn free of tax at any point in time.  Therefore, your contribution offers dual assistance: retirement savings or availability at any big milestone, such as a down payment on a first home.  Given the opportunity to grow, a contribution made at a young age makes a big dent in one’s retirement savings.  At a rate of 7% per year, a $5,000 contribution made to a 16 year old's Roth will grow to $136,000 by age 65.  Not too shabby for one summer's worth of work!

As a valuable side note: It is important to recognize that contributions made to a child’s Roth IRA do count toward the annual gift tax exclusion of $13,000. 

About the Author
Ali Todd is a director in the Katz, Sapper & Miller’s Business Advisory and Veterinary Services Groups. Ali works closely with her general business and veterinary clients to prepare client financial statements, tax returns and business plans as well as provide other general business, consulting and accounting services.

link
Comments (0)
Post a Comment
Name:
Email: (Not Displayed)
Website: (optional)
Comment (HTML tags will be stripped):
Please type the alpha-numeric code above (case sensitive):
Error