Financial Experts say Parents Should Open IRA Accounts for Their Children
According to financial experts at The Post and Courier, parents with teenage children should consider opening an IRA for them. With so much focus on college funds and home deposits, are we truly preparing our children for the future? With the consumer price index rising, we could be doing more harm than good. Let’s take […]
According to financial experts at The Post and Courier, parents with teenage children should consider opening an IRA for them. With so much focus on college funds and home deposits, are we truly preparing our children for the future? With the consumer price index rising, we could be doing more harm than good. Let’s take a look at why experts are saying we should open up IRA accounts for our children. Along with some more information on how it all works and what we should be looking for.
College Funds and House Deposits
When we think of saving up money for our children, we tend to think of the above reasons first and foremost. We want them to get a good education and then to buy themselves a nice home. We’ll tend to opt for a high savings interest account, to help them achieve this. Family members will put in what they can, to help their children succeed. Financial experts are saying this is not the way to go. Instead, money should be put into an IRA. Most of the accounts are subject to certain tax breaks and can be used without penalty. As long as money has been going into the account for more than 5 years. They can then be used for tuition fees, first time buyers, and even medical bills. If you open an IRA for your teenager, then you’re starting that five-year clock early. These will then give them plenty more options than if you’d just started up a savings account for them.
IRA is not Just for Retirement
Because of the name, people think that an IRA is solely for retirement. As we’ve already mentioned, this isn’t the case at all. There are plenty of loopholes that enable people to withdraw money from their IRA before they have retired. Without being penalized as well. It is well worth looking into the different ways you can withdraw money from your IRA. You can also set up a custodial account before they turn 18. This will give your teenager a head start in their adult life, that can then be used to plan for the future. In an article by Forbes Magazine, it says that parents can be the biggest retirement risk for young adults. Don’t let that happen to your child.
Setting Up an IRA
If you are going to set up an IRA for your teenager, then there are some things to consider. Firstly, think about how much money you wish to contribute to their future. Generally, there are rules around how much can be put into a retirement account, so ensure you’re not going over that limit. You can not put any more than the teenager earns in one year. If they don’t earn anything then $5,000 is the maximum in a year. You may also want to look into brokerage IRA versus self-directed IRA to see which is going to be better for your circumstances. Any funds that have been contributed can be withdrawn without tax or any penalties. As long as the account has been open for the minimum of five years.
Planning for your teenager’s future is imperative in this day and age. Before putting everything into a high savings account, look into whether an IRA would be a better option for the family.