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Here is an idea that I would bet that you never considered. If your grandchildren are working this summer, give them a jump start on feathering their retirement nest egg. A grandparent can contribute to a Roth IRA for a grandchild who has earned income.

The maximum contribution for 2019 is the lessor of $6,000 or the child’s earned income. You can make a contribution as late as April 15, 2020 for this year. Thus, if your grandchild earns $3000 this Summer, for example, and you put $3,000 into the Roth IRA on their behalf, it could grow to about $55,000 by the time they hit 67, assuming a conservative 6% rate of return. While the contribution can be taken out tax free anytime, the earnings can be withdrawn tax-free once they hit age 59 1/2 or older and has had the Roth IRA for at least five years.

By the way, this technique also can be used with your own kids.

Sandy Botkin
CPA, Tax Attorney, and former IRS trainer
Co-founder at Taxbot

Sandy is a CPA, Tax Attorney, and former IRS trainer. He has authored many helpful books on the subject of taxes, including 7 Simple Ways to Legally Avoid Paying Taxes ( Click Here ), Lower Your Taxes: Big Time ( Click Here ), and Real Estate Tax Secrets of the Rich ( Click Here ).

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Posted in: Taxes