<p>trying to drill into my D1 to contribute to her summer employer retirement account…not making a lot of money, 12-14 per hour, but we are suggesting at a minimum of 30-40 per week…anyone else confronting this issue? Fwiw, we pay all college costs,trips,cell phnes,car insurance ,etc…so anythng she makes is really just spending money during college and summer spending…thoughts?</p>
<p>Son currently isn’t contributing to a retirement account but currently should be saving about $1,200 to $1,300 per month after taxes. I contribute to a 401K but sometimes wonder if I would be better off paying the taxes now instead of later - I think that we’re going to eventually have to raise taxes on everyone in the future and tax rates on the income from 401K plans may be significantly higher than they are today. They will also be taxed at ordinary income rates rather than favorable capital gains and dividend rates today.</p>
<p>Roth IRAs are a great idea for students. Pay tax on income now ( low bracket) ,
put it away for retirement, let it grow tax free. Withdraw down the line, no taxes.
( assuming tax code doesnt change)</p>
<p>I don’t think it’s worth worrying about contributing a portion of relatively low paid summer hourly wages to a retirement plan. I think they’re better off using it to pay for a larger share of their own expenses or to save it for use later. The effect of this contribution on a retirement fund will be relatively insignificant and I think they ‘learn more’ at this point by actually using the money for their expenses and equating the working to the spending and costs. </p>
<p>Maybe think about the kid paying for their own cell phone including the share of the monthly cost if on a family plan and the data/text charges. Also up for them - paying for their own entertainment, clothing, etc. if they have a bunch of money left over then they can pay for their books, fees, etc.</p>
<p>Looking at it another way, why should you be paying for these incidental expenses so the kid can put that equivalent amount of money away to not use until they’re older than you currently are? If anything, you should be putting that money away for yourself.</p>
<p>Now, when they graduate and get a ‘career job’ they should start contributing to their retirement plan.</p>
<p>And don’t forget about possible grad school expenses…</p>
<p>Amen GGD! qdog, your daughter should maybe instead take out a life insurance policy on you with her summer earnings naming herself as beneficiary in case you are out of the picture and allowing her to continue living the high life.</p>
<p>If kids/families are able to spare the money, starting a Roth at a young age is a great thing to do. I don’t think student retirement funds are looked at in determining student contributions to college payments, and they can withdraw their contributions (but not interest or other gains) tax-free at any time. The benefit of allowing funds to grow tax-free over 4-5 decades is huge – the impact of contributions made at a very young age is immensely greater than those made in later decades. My husband went so far as to borrow money to fund his IRA in his 20’s, while he was still trying to pay off his student loans – this turned out to be one of the best things he ever did (financially, that is!).</p>
<p>CIEE 83, the growth /interest is tax free… that is the appeal of the Roth.
But you get NO deduction on your taxes. That is the difference.
Most students dont need the deduction.</p>
<p>I did contribute to my daughter Roth IRA when she was working for a few years. She has a nice sum but she does not know how much exactly and doesn’t care. However, I no longer contribute now that she is over 21.</p>
<p>I started/contributed to at ROTH IRA for each kid when they started working. I paid into the account the total amount they made & let them spend he money they earned. When D gets a job that pays, I’ll contribute a bit more to even out the accounts, since S’s jobs paid more & he had more deposited into his ROTH IRA than D.</p>
<p>I’m not knocking anyone but I don’t get why parents are paying into a kid’s ‘retirement’ plan by ‘proxy’ (offsetting the kid’s contributions through support as the OP indicated) or directly as some other posters are doing. It doesn’t make sense to me. I certainly wouldn’t have wanted my parents to do that for me nor did I need them to.</p>
<p>I think the ‘kids’ can full well contribute to their own plans and should do fine and don’t need my support in order for them to retire 40+ years from now. They also don’t need to start when they’re 19 or 13 or 5 y/o. Starting once they enter their careers at 21-25 should be fine.</p>
<p>I’m a staunch believer in spending conservatively and saving including doing so for one’s own retirement but I also think the kids need to learn the value of money by earning and ‘spending’ as well on things they need and want including their own savings and at the appropriate time, retirement savings.</p>
<p>I’m contributing 5% of one of my job paychecks to a 401k. In that summer, that works out to about $25/week. My employer matches up to 3%. I’ll probably only be there long enough to get 25% of that though, but my own contributions are adding up. </p>
<p>I do this after paying all my own expenses, except insurance.</p>
<p>I would want to contribute to my own costs before contributing to a retirement account. But really, if all you’re paying for is your fun, you should put a good chunk of that into savings of some sort IMO.</p>
<p>I think our kids will face a tougher world because pensions are/have disappeared, we are leaving them with SIGNIFICANT national debt, and because the future is pretty uncertain. I see nothing wrong with us helping our kiddos start their ROTH IRAs–seems like a great idea to us!</p>
<p>So a Roth IRA would be the best for receipt of gift money, from a tax perspective?</p>
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<p>I agree 100%.</p>
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<p>I hope they realize this is not what happens in the “real” world.</p>
<p>We talked to D over Christmas break about starting to save for retirement beginning this summer. We’ll need to decide on the best vehicle, and DH and I may prime the pump if it’s necessary to set up the account. But for us, it’s not about amounts, or growth, or tax consequences. It’s about getting her into the habit of doing this from the very beginning of her earning life.</p>
<p>Of course, saving 10% or more is the goal, but for low-earners like college students (or for older people who have significant expenses or debt), that’s not realistic. I heard someplace about a good way for such folks to get going, and this is what we’re going to propose to D: Start out saving 1% of gross income. With the tax savings, that’s not going to be missed by virtually anyone. Then, every 6 months, bump it by another 1%. In five years, you’re at the magic 10%.</p>
<p>My kids have had retirement accounts since they were very young. We do it as business owners to help offset taxes for us, and it benefits them down the road.</p>
<p>If we needed, those funds could be used for college as well. </p>
<p>I’m advising them to put 10% of their income into retirement as soon as they earn money in a “grown up” job. Do a 401k up to the match, then go to a roth, then go back to the 401k to the limit. We preach living below your means and saving. </p>
<p>I’d rather they learn to save then learn to spend.</p>
<p>When my kids were in early high school, there was an article in the paper about kids putting money in their Roth IRA’s. This was so long ago, that the max was $2,000. Basically, it said that if an 18 yr old contributed the max for six years and then stopped, and his twin brother waited until he could afford to do so, at age 24, how many years would it take for the twin to catch up to what the first had saved? The answer was that with compounding, the second twin would NEVER catch up. It convinved mine to save whatever they can and they are well on their way to being financially secure now. </p>
<p>I also agree wholeheartedly with the poster who said that the savings should come from them, not the parents. My middle son had a friend whose parents gave him his allowance when little in three amounts, the first third to spend, the second to save and the third to donate. I can tell you that the minute the parent stopped dictating what he did with his mone, not another penney went to either donating or savings.</p>
<p>We started & funded our kids’ Roth IRAs when they were teenagers. As they got into college, we backed off on what we would contribute (we’d match their contribution). By the time they were 20 years old, they were on their own to make/not make contributions. S1 is diligent about making contributions; S2 not so much. We encourage him to do so, but what he does is up to him.</p>
<p>Retirement assets are unique, mostly untouchable.(from outside sources) So… a Roth is a great idea for kids that have earned income, extra cash. They already paid the income tax, they get no deduction, they can pull it out whenever… no tax liability. That may be the downside, too accessible for our spend happy society. But a good idea if they meet the above requirements. And yes, agree with compounding comment, just pick the right investment!!
I do worry that politicians will see this as a big pool of money to access down the road and change tax code… think munis and AMT… but until then, Roth is a good idea.
Think how much money the IRS collected when so many converted their traditional IRAs to Roths - good for investor or govt? you decide :)</p>
<p>From where I sit, any way the younger generation that can be encouraged to save in an account is a good thing! Our generation inherits and spends~</p>