Parents are always looking for ways to help their children prepare for their future, and what better way to do that than to encourage them to invest their own money in a high-interest retirement account from the start? A self-directed IRA is a great way to earn more interest on a retirement account, but can kids take advantage of these accounts too? Yes and no. The answer isn’t as simple as I’d like, but under the right circumstances some children can take advantage of an SDIRA, find out how your child can.
If you want your child to be able to invest in an IRA, you need to make sure they work at some point during the year. This idea is very important to realize, because without some income of your own it is not possible to invest in a self-directed IRA. As soon as your son gets a summer job, or some time after school, he can start saving money for retirement or you can do it for him.
Although having a job is enough for your child to be able to invest in an SDIRA, it does not mean that they will be able to make the maximum contribution of $5,500 each year that they work. That number is only valid when you earn at least $5,500 during the year. If your child only makes $1,500 at their summer job, that’s the maximum amount that can be contributed to the IRA.
It’s amazing how much money a simple SDIRA account can generate for your child over their lifetime, as long as you leave it in place. Just a few thousand dollars can add up to millions of dollars over time, as long as they are invested carefully. Make sure your child takes advantage of the options available to her. Most kids don’t even consider investing in retirement early on, but that’s when the investment pays off the most.
Just make sure your child is taking on an investment that has a good chance of paying off over time. Children like to invest in something that interests them, but an interesting investment is not always a good one. Encourage your child to try, choose her own investment, but also guide her toward something of some value. If you are unsure about an investment that interests you, it may be worth seeking the help of an expert.
Cars or new gadgets are an attractive way to spend your summer earnings, but a careful investment in a self-directed IRA could make all the difference when your teen finally decides to retire. Trust me, he’ll thank you later in life for pushing him to invest in her future.