Author Topic: Roth for a 17 Year Old??  (Read 1653 times)

2Old2RE

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Roth for a 17 Year Old??
« on: August 17, 2018, 04:35:05 PM »
17 year old daughter has a vintage passbook savings account with money I enticed her to save a part of from birthday money, Christmas money and so on over the years. I would like to see her park it in a Roth for the next 50 years. Yes it not much only about $3500 but she could also contribute some from her part time job too. Maybe monthly? Problem being the local financial planner doesn't seen to have the time or interest to work with her on such a small amount. Now after me telling her how this would be such as great thing and them poo pooing her shes discouraged. Says she'll just leave in the savings account and spend it for college. I don't see the need to save it for college as the amount won't move the needle that much but compound interest over the next 50 years will. What do you guys think? That savings account is only making her a fraction of a percent....

ILikeDividends

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Re: Roth for a 17 Year Old??
« Reply #1 on: August 17, 2018, 04:50:56 PM »
17 year old daughter has a vintage passbook savings account with money I enticed her to save a part of from birthday money, Christmas money and so on over the years. I would like to see her park it in a Roth for the next 50 years. Yes it not much only about $3500 but she could also contribute some from her part time job too. Maybe monthly? Problem being the local financial planner doesn't seen to have the time or interest to work with her on such a small amount. Now after me telling her how this would be such as great thing and them poo pooing her shes discouraged. Says she'll just leave in the savings account and spend it for college. I don't see the need to save it for college as the amount won't move the needle that much but compound interest over the next 50 years will. What do you guys think? That savings account is only making her a fraction of a percent....
Read this:

https://www.cbsnews.com/news/kid-roth-how-parents-can-raise-a-millionaire/

Your daughter should read it too.

Then fire the financial planner.  He doesn't want to manage her account because it's not big enough for him to make much money on, like he's probably making on your account.  Financial planners make money by convincing you that investing has to be complicated.  Then they put your money into a basket of their own company's high-fee funds that pay them a commission, and then generally under-perform, compared to a simple low-expense index fund, over time.

My mother used to be a financial planner.  God bless her heart, but to this day she still knows zip about investing.  It was just a job for her.  She never understood why I wouldn't let her put me into one of those hideous funds, even after I explained it to her.

Open a Roth IRA for your kid at Schwab (Schwab will gladly help you do this), and have her buy as many shares of ticker symbol SCHX as her money will buy, and set it to reinvest dividends automatically. Then tell her to forget about it for the next 50 years or so. *  (See exception below)

Note: she will be limited in how much she can put into a Roth based on her earned income, so she might have to dribble it in over a year or two.  If she's going to earn $3,500 or more this year, she can and should plop the whole amount in right away.  When she turns 18, different contribution rules take effect, so take advantage of the rules that apply to her age right now.

SCHX is an S&P 500 index fund equivalent.  Low expenses, and no fees to buy or sell.  You become instantly diversified across the 500 largest US companies. When you buy this one ticker symbol, you own a piece of them all.

Your daughter's future self will thank you for it.

*During the early part of that 50 years, encourage her to learn about the basics of asset allocation and other fundamentals of investing.  This forum would be an excellent place to start.  Then she can learn more nuanced ways to rearrange her IRA using other no fee, low expense index funds, so as to to construct a portfolio suited to her specific risk tolerance and goals.

Investing can be as simple or as complicated as she wants to make it.  Even if she does nothing else, SCHX should treat her quite well over that period of time.
« Last Edit: August 18, 2018, 04:21:40 AM by ILikeDividends »

sparkytheop

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Re: Roth for a 17 Year Old??
« Reply #2 on: August 17, 2018, 05:57:09 PM »
My son opened one with Vanguard at 18.  As mentioned above, it will be limited to earnings; things like gifts, child support, etc, won't count. 

The good thing is that the contributions are accessible, if truly needed, for college.  Not a good practice to get into (robbing from what should be set aside long term for retirement), but it is a bonus.

ILikeDividends

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Re: Roth for a 17 Year Old??
« Reply #3 on: August 17, 2018, 06:59:51 PM »
My son opened one with Vanguard at 18.  As mentioned above, it will be limited to earnings; things like gifts, child support, etc, won't count. 

The good thing is that the contributions are accessible, if truly needed, for college.  Not a good practice to get into (robbing from what should be set aside long term for retirement), but it is a bonus.

Just to be super clear for the OP, the amount you can contribute to a Roth is limited by the amount of earned income; which doesn't include gifts, etc. But if she does have earned income, gifts can be used to fund the account, up to the limit.  It's just that gifts don't raise the limit, where more earned income would raise the limit.
« Last Edit: August 17, 2018, 07:06:01 PM by ILikeDividends »

MDM

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Re: Roth for a 17 Year Old??
« Reply #4 on: August 18, 2018, 09:35:17 PM »
Just to be super clear for the OP, the amount you can contribute to a Roth is limited by the amount of earned income....
+1

Further, it's earned income (aka "compensation") for the contribution year in question, not cumulative including previous years' compensation.

See also Where to start a child's Roth IRA with very low income?.

Indio

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Re: Roth for a 17 Year Old??
« Reply #5 on: August 19, 2018, 09:19:06 AM »
I opened Roths for my kids 10 years ago when they were little kids because they helped me with my side business and I viewed them as employees. Roth money is not considered in college financial aid as it is in a retirement account. I split the contributions across Amzn, Appl and Schwab index and buy more when ever there are enough funds. They now have some major $$, at least it is for a teenager, in their accts and it is nicely locked up so they can't access it until I transfer access over them. Every time they babysit or earn money, I take half and put it in their accounts before they can spend it. They don't like turning it over to me, but when they see the appreciation, they are very happy. Now when they want to buy a bottle of ice tea, instead of drinking from the water fountain, I remind them about compounding.
My goal would be to set up Roths, if and when I have grandchildren, because I can see how much a difference the compounding can make. Even if they only put contributions in for 10 years and then never touched it until retirement, they would have a great nest egg.

Unique User

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Re: Roth for a 17 Year Old??
« Reply #6 on: August 20, 2018, 06:41:34 AM »
My 16 year old has a job and we intend to fund a Roth for her, in fact, I need to take her to open it up.  We have a Fidelity office nearby and I thought it would be more impactful for her to go in person to open the account.  I wasn't really thinking about the idea of how much it would grow, just more of the idea that she'll have it as an option for saving.  She already saves around 40% of her earnings for college spending, so we'll fund the Roth for her.  Fidelity and Vanguard have Roth IRAs for minors also. 

ender

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Re: Roth for a 17 Year Old??
« Reply #7 on: August 20, 2018, 06:55:37 AM »
I've always thought that doing a match for kids is a good way to fund these, too, especially if they are young.