Author Topic: Beginning Investing for Adult Kids  (Read 2319 times)

Roamer

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Beginning Investing for Adult Kids
« on: February 07, 2016, 08:54:24 AM »
Ok, so I have a couple of kids and was wanting to start them off right with investing as I started way too late. I have my son doing 30% of his salary (I'm so proud!) into a Roth and was wondering if he should do all Roth or supplement with traditional 401K/Ira the before tax kind.
Doing taxes with Turbotax, if he did 3K into a traditional, he would get back $600 more on his taxes for 2015.  He is also in the military if that matters. 

And for my other child, they are in school with only part time income (2k maybe) so I didn't know how much you are allowed to save in a retirement plan (I would put money in here to get them started if allowed)
I was wanting both of them to open accounts with Vanguard and we would go from there with either Roth, Traditional, or both.
Any ideas?

GrowingTheGreen

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Re: Beginning Investing for Adult Kids
« Reply #1 on: February 07, 2016, 09:53:14 AM »
For your child that is still in school:  They can contribute up to either their earned income or $5,500 into a Roth, whichever is less.  I've heard of people parents matching their child's investment into a Roth IRA to help encourage them to save and to get them started.

Vanguard will let them open an IRA using one of their Target Date funds for $1k.  This would be the way I would go if I were in your shoes.

You're doing them such a good service by encouraging them and getting them started.
« Last Edit: February 07, 2016, 09:58:22 AM by GrowingTheGreen »

MustacheAndaHalf

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Re: Beginning Investing for Adult Kids
« Reply #2 on: February 07, 2016, 11:33:06 AM »
"Doing taxes with Turbotax, if he did 3K into a traditional, he would get back $600 more on his taxes for 2015."
Since there isn't a 20% tax bracket, I assume state taxes are also involved.  When you contribute $3,000 to a Traditional IRA, it's tax deductible now but you pay during retirement.  The $3,000 tax deduction gives you $600 saved on taxes.  For someone in the 15-20% tax bracket, a Roth IRA lets you "lock in" that tax bracket for retirement.  You use after tax money (the W-2 income you already paid taxes on) to fund it, and never pay taxes again.  I prefer Roth because it's more "what you see is what you get".

I'd suggest trying to represent both sides to your son, and let him decide.  The awareness and responsibility of making the decision are more important than the decision itself.

Roamer

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Re: Beginning Investing for Adult Kids
« Reply #3 on: February 07, 2016, 12:36:15 PM »
Thanks for the tips. All of his retirement is currently in a Roth, so I'm not sure exactly how much he can put in on a 20k salary.
I didn't know if you could do a certain % in a Roth and an additional % in a traditional.

hyla

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Re: Beginning Investing for Adult Kids
« Reply #4 on: February 12, 2016, 09:57:15 PM »
As another poster said, a roth IRA in a vanguard target date fund would be a really good way to start off your child who is still in school.

For the kid in the military, does he have access to a TSP through his job?  This is the employer retirement savings plan for federal employees, and it has funds with insanely low expense ratios, so if he is eligible it might be a better option that an IRA.  But if he doesn't, saving in a Roth like he is doing is also a good plan. 

Nords

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Re: Beginning Investing for Adult Kids
« Reply #5 on: February 13, 2016, 10:51:03 PM »
Doing taxes with Turbotax, if he did 3K into a traditional, he would get back $600 more on his taxes for 2015.  He is also in the military if that matters. 

Any ideas?
Yes, the military service matters quite a bit.

That son's total compensation is lightly taxed because only his pay (base pay and special pay) is subject to income tax.   All of his allowances are tax-free.  With deductions, exemptions, and tax credits it's quite common for enlisted below the rank of E-6 (and officers below O-3) to pay zero taxes.

Your son should invest in the military's Roth Thrift Savings Plan and attempt to maximize those contributions first.  His next priority should be his Roth IRA.  Don't shelter any income in the traditional TSP or a traditional IRA-- pay the taxes now (at the lowest income tax bracket of his life) and enjoy the years of compounding before being able to withdraw the funds without paying any taxes at all.

If your son is maximizing his contributions to his Roth TSP and Roth IRA (with Vanguard) then he can open more taxable accounts (with Vanguard).

"The Military Guide To Financial Independence And Retirement" is in over 100 libraries across the nation.  Please read it before you give your son advice on investing his military income.

Roamer

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Re: Beginning Investing for Adult Kids
« Reply #6 on: February 16, 2016, 10:01:49 AM »
Thanks for the info on the military savings. He is doing 30% in the Roth TSP I'm pretty sure. I will tell him to check out that book for more info.