|Wealth Building Information|
Create Tax Savings And Transfer Wealth To Your Child With A Roth IRA
Parents must give serious thought to protecting their family through estate tax planning. While life insurance and trusts should be a part of every plan, Roth IRAs can be a simple tool for passing money to your child on a tax-free basis.
First, we need a quick summary of the Roth IRA. A Roth IRA is an after-tax retirement vehicle that produces huge tax savings because all tax distributions are tax-free. That statement can a bit confusing, so lets break it down. The downside of a Roth IRA is the fact that contributions are not tax deductible as with traditional IRAs or 401(k)s. The upside of a Roth IRA, however, is that all distributions are tax-free once the person reaches the age of 59�. So how can you use a Roth IRA to pass money to your child?
Opening A Roth IRA For Your Child
One of the biggest keys to retirement planning is "time". The more years you spend saving money for retirement, the more you should have when that blessed day arrives. Imagine if you had started saving for retirement when you were 16. How much bigger would your retirement nest egg be? What if you purchased Microsoft stock in 1990 and watched it split eight times? Okay, that was painful example if you missed that opportunity. Nonetheless, why not do for your child what you didn't do for yourself?
The fundamental goal of estate planning is to pass as much of your estate as possible to your family on a tax-free basis. You can transfer relatively small amounts of money to your child now. If you have a 16 year-old child with a Roth IRA, you can contribute $4,000 in 2005. That $4,000 is going to grow tax-free for 43 years and be worth quite a bit. A ten percent return would result in the account growing to roughly $200,000 and the full amount would be distributed tax-free. There are other practical advantages to opening a Roth IRA for your child.
As a parent, it is vital that you teach your child the value of money. Opening a Roth IRA gives you the opportunity to sit down and teach your child the value of saving and investing, instead of yelling at them to clean their room. While a parental lecture on the need to save money would typically meet with glassy eyes and yawns, your child's attitude will undoubtedly change when you are talking about their money.
Work and Maturity Issues
Before you rush out to open a Roth IRA for your child, you must determine if your child is eligible to open an account. To open an account, your son or daughter must be working at least part time for an employer that reports their wages to the IRS. Hiring your child to take out the trash each week is not going to cut it, nor will this strategy work for your 5 year-old. Many teenagers, however, have summer jobs that should suffice for IRS consideration. To avoid any trouble, you should consult with your tax advisor.
A more sublime issue concerns the maturity level of your child. Keep in mind that the Roth IRA will be opened in their name. Your son or daughter will have the legal right to do what they will with the account. It is strongly suggested that you clearly explain the consequences of taking money out of the account [taxes, penalties, being cut out of the will, forced to eat healthy food, grounded for life, etc.] but the decision lies with them. As difficult as it is, try to be objective in evaluating how you child will react to knowing the money is sitting in an account. If you have doubts, you should probably investigate other tax saving strategies.
Opening a Roth IRA for your child can be a very effective means of transferring wealth to your child and teaching important life lessons. If your child exercises restraint, your relatively small contribution to their Roth IRA can grow into a sizeable tax-free nest egg.
Richard Chapo is CEO of http://www.businesstaxrecovery.com - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review. He can be reached at [email protected].
Residual Income - 3 Ideas for Long Term Profits
A residual income is one that comes in no matter what--even when you are not working (or can't work.) It's something all of us will someday want and possibly need.
Before There Was Wall Street, There Was Gold.. & when Wall Street is gone, there will still be Gold
Paper burns and large companies can go bankrupt, but if you want a piece of the solid rock, go for Gold. Financial experts agree that the rising value of gold, which has climbed since 2001 to a 16 year high of $456 (U.S.) an ounce, is going to be spurred on in 2005. Precarious world situations, from political turmoil to flailing currencies, are taking a toll on the trade markets. The cry for stability and future security is high on the priority list for North Americans and can also be heard pulsating around the globe. Gold, along with the precious metal industries, is emerging as a reliable anchor for many investors at home and abroad.
Generate Savings with Smart Use of Electricity!
No matter what income level you are currently at, generating savings is always a smart move to make. So what is one area you can generate a satisfying level of savings? Change your habits and how you use electricity. Yes, do these simple steps and satisfyingly watch your electrical bills dwindle.
Profit from Your Own Information Empire!
Would you like to profit from your own information empire? Here are a few ways of doing so.
Early Retirement The Dream of the Working Classes
Everyone dreams of early retirement. The idea of no longer having to work at an early age is very attractive to some people and they dream and wish all day long about the day that they can afford to say, "Take this job and?" well, you know. Unfortunately, for many people, early retirement is a dream that will never be realized. It is not because they are in a job that won't allow early retirement or because they love their work so much that they can't bear to leave it. It is simply because they spent their time dreaming about early retirement rather than planning for it.
The 11 Best Money Saving Ideas of All Time - Part 4
At any time in history, no matter what the current state of the economy, no matter what the current trends, no matter what the unemployment rate is or where interest rates lurk, some money-saving ideas stay true.
Trustee Fees: How Much is Enough and How Much is Too Much?
I am often amused by the ads and offers I see concerning living trusts.
Your Money Or Your Life
Have you stopped to realize that although you go to school to learn about important subjects, no one teaches you how to manage your money? � Money is an essential part of life in our pursuit of happiness, yet very rarely will a parent sit down and tech their child how to handle their money. � This is true in grade school, high school and worst college.� So what happens?� Many of us end up in an extremely large amount of debt.� We can't seem to get it together even if we make more money. � I found myself in this trap about 13 years ago.� I had an okay job, a car, and an apartment.� Nice I thought soon I would buy a house and live the "American dream".� Wrong!� I could never save enough to buy a house.� I had plenty of credit cards, so many that I never had enough money due to many payments to put aside for my dream home. � What was happening to my paychecks?� Well, I was over extended in credit card debt for one.� The buy now pay later syndrome was well embedded in my head.� That mentality had to stop!� Since, I wasn't terribly behind in my payments I was able to get some help from the creditors.� I simply asked for a lower interest rate and/or the ability to skip a payment.� After that call, I had to cut up and dispose of the cards.� No! I didn't cancel my cards but I got rid of them just the same.� � Next I bought a tablet just for my budget information and bills.� I also purchased a software program to keep track of my expenses.� I think it is important to keep something manual that you can carry as well as a computer software tool. � Next, as bills came in, I wrote them down with the name, address, phone number of the creditor, my total balance, interest rate, and minimum payment due, the due date, and if there were any annual fees acquired with the card. � Review the card with the highest interest rate and pay more then the minimum due.� Always ask if they can reduce your rate or seek the possibility of debt consolidation buy applying for a low interest rate loan or credit card.� If you haven't cut up your credit cards do not get a consolidation loan.� Because most likely once your payments are manageable you'll start using your cards again. � Minimizing your spending is the key to financial freedom.� Make sure to start a savings plan after you've gotten your debt under control.
Dont Leave Your Financial Success To Chance
Recently I was reading a book called The Millionaire Mind. The book offers an intriguing look into the minds of those that have attained over one million dollars in net worth (there's far more to it then this, but I won't get that in depth for the purposes of this commentary)...
Spiritual and Emotional Money Goals: The Keys to a Financially Free Future
Are you setting the right money goals?
The Financial Equation that Will Set You Free!
I have a good friend who works in an area of the US that has more than its share of poverty. He called me the other day with a very broken heart. He was feeling badly for the people around him who simply do not allow themselves to get set free financially. I could feel the pain he was feeling because I too, very often wonder why it is that some people experience financial independence and others do not. It really is a mystery.
Rich or Poor - Get the Knowledge
Most people work hard all their lives only to "retire" poor then try to live off meagre savings or a small (rapidly disappearing) Government pension. They are forced to live out their twilight years struggling with constant money problems. Many of them have to buy only the cheapest food and are unable to enjoy the little pleasures of life like going to an occasional movie, eating out or taking short trips. They have to watch every cent they spend.
Warren Buffet: Wisdom from the Worlds Richest Investor
In light of the dominant mindset overshadowing the market these days, a breath of fresh air might be welcome. This month, we're devoting this space to wisdom from Warren Buffett, the world's richest investor. Buffett is a renowned value investor who follows Benjamin Graham's timeworn principles, a standard not unlike our own focus. Alas, in times like these, value investing has fallen out of favor; a sad situation, as these times are ideal for value hunters. Buffett writes prolifically every year in his company's annual report, and provides tidbits of long-lasting wisdom. Here are some excerpts that may help bring perspective to today's investor:
Stop Losing Thousands of Dollars Every Day: Six Tips For Creating Wealth
We all go to school for about twelve years, kindergarten through high school. Some of us go to college and then graduate school. Personally, I went to school for three years beyond college with law school and took financial courses after that was over. In all of that time, economics courses, accounting courses and even tax courses, no course or school ever covered what we are going to talk about.
Its High Time for Lifetime Savings Accounts
I'm constantly reading articles on the internet and in financial magazines in which so-called financial planning experts express perplexity as to why about 30% of employees do not participate in their employers' 401(k) plans. These writers don't seem to have clue. Well, allow me to enlighten them a bit. For the most part, it's because of the restrictions imposed on the employees' money.
Why Get Rich When You Can Be Wealthy?
"Any fool can rich, the wise get wealthy." Chris Widener
The Difference Between Wants & Needs
So you want to become wealthy? While there is no single road to getting there, it's a sure bet that one principle is in place for those who keep their wealth over a lifetime. Live beneath your means. Spend less than you make. Don't spend more than you can afford. It doesn't come any simpler than this. If you want to create wealth, you have to learn to do this. It doesn't matter if you make $10,000 a year or $1 million, if you don't learn how to master the step of spending less than you earn, you'll never create lasting wealth.
It Adds Up
Loose change that is, if you want a easy way to start saving a little extra money these 5 tips show you how to do just that.
An ellipsis to your success is hidden in the word prosperity. Take a letter; make a word; assign a meaning, discover a pathway to your prosperity. You might be tempted to think of this as a simple word game. Remember that to play is to use both halves of your brain.
Cost Averaging - It Makes Sense (Dollars & Cents)
It's no secret that the market goes UP...the market, goes DOWN. That's the basics of Investing 101.
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