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Roth IRA for Adult Child

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  • Roth IRA for Adult Child

    I'm trying to help my son kick start his retirement but want to hide it from him.  Currently he is a 19 year old bio major in his sophomore year potentially going to med school or becoming a PA (hopefully he goes to med school).  I do his taxes every year for him.  I'd like to fund a Roth IRA for him every year with funds that he pays me for his monthly car insurance plus matching funds from me.  Of course I know if I tell him about it and he sees it grow, he will just take it and spend it because I know I would have at his age.

    Does anyone know how this can be accomplished and hide it entirely from him?  I want to hand it over to him at a later date when he starts in the workforce.

    Tried to do it via Vanguard but for some reason the "open an account" option on the website couldn't verify his identity and wants me to mail the application in and/or call Vanguard.

     

  • #2
    Does he earn any income. Or does he pay for car insurance from the funds you have given him.

    He truly has to buy in tor Roth culture and contribute to it himself. Otherwise he will spend the money at some date. Instead of hiding from him, teach him good finances.

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    • #3
      He works at AMC (movie theater) part time and over the summer the YMCA as a camp counselor.  Roughly makes 10-12k/year.  He pays me directly for car insurance since getting it on his own is extremely cost prohibitive.

      I've been working on teaching him good finance habits all the time of course leveraging the HUGE mistakes that I made.

      But I see where you are going.

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      • #4
        I would set it up for him, but tell him he can't touch it till 59.5.  I certainly wouldn't have known how to take out an IRA (actually, I still probably couldn't figure out how to get the money out....) and make it clear that this is RETIREMENT and not for anything else.

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        • #5
          Don't hide it. Use it to educate him.  I was worried my daughter would spend it also.  But, I was wrong.  We set up the Roth for our kids including Power of Attorney for me when they were in their teens.  They put in 15% of their pay, and we put in a very generous match.  When they finished college, I told them when they were ready they could remove me as POA with just a phone call.  You are one of your child's most important teachers.  Don't abdicate that responsibility when it comes to teaching finance.

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          • #6
            Also beware that you can't contribute more than his earned income each year, so he has to earn at least $5,500 for you to max it.

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            • #7
              Unless he is interdicted etc there may be identity theft issues here if you do this behind his back.

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              • #8
                Exposing him to identity theft is definitely a concern.  The power of attorney option might be the ultimate path since I want to be able to control the investment options until for the next couple of years and possible hand it over to him.  Hmm.

                Thinking he and I sit down and discuss this, of course after I talk with the wife.

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                • #9
                  I think it's a great idea. Just have the statements come to your house   . I did this with both my boys and was lucky enough to have them at lawn-mowing age the 1st year Roths were available. They still have them intact and in low six figures. I told them that if they ever touched them, the gravy train would stop. I think they still look at them as partly my money because they've never considered touching them for anything frivolous (my older son took some out last year when he and his wife adopted a 6-yo special needs son from China, and I was thrilled it was there for them).
                  Financial planning, investment management and CPA services for medical and high-income professionals | 270-247-6087

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                  • #10
                    Quick update. My wife and I agreed to talk to my son and explain to him the benefits of a Roth ira which we have done. We offered to work with him to create a Roth ira but we would manage it via a power of attorney and toss in money from time to time. We would then hand it over to him when he starts his first job. His response was pretty much what I expected. He said no because he wouldn't have control over it. Reminded him that he is passing up free money.

                    Told him to think about it and get back to me later.

                    Definitely doing this for my 15 year old daughter as long as she gets some type of salary this year which she usually does.

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                    • #11
                      For your daughter you may have to set up a Custodial Roth Account. Then when she reaches the age of majority (21 in my state) she will fill out paperwork to take over the account at which point is when we had our kids add me as Power of Attorney.

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                      • #12
                        He said no because he wouldn’t have control over it. Reminded him that he is passing up free money.

                        I do not yet have adult children, but I would be pretty offended if they wanted to pass up my money because they were not "in control".   Is there a way to help him feel more in control of the money but still requiring him to not pull out until he takes full control?

                        Do you otherwise support him? Is he in control of that money?  I would be reluctant to give any other discretionary funds to my child who declined such a wonderful gift.  Then again I am speaking as the child of parents with no financial sense who have cost me money and I would love to have a parent like yourself.  He sounds pretty ungrateful unless I am missing something.

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                        • #13
                          My teens both have Roth IRAs. My son, now 18, has an ongoing job and contributes half of his salary, which I match. He has a total of a little over $5k in the account, and as Johanna suggested, the statements come to me.

                          More importantly, they also both have UTMA accounts, each worth over $100k, which technically he could gain control over as of his recent birthday. This is the third pillar of his college funding (after 529 and cash flow from our incomes), but to the extent that it remains unused for this purpose, I intend that he uses it as a "starting out in life" fund. If he tries to take control of it sooner than I would like for an unapproved purpose, which is legally within his rights, he would likely lose access to the other pillars and potential financial largess further down the road.

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                          • #14
                            It's not free money if he has to dig some of it out of his own wallet and give it to you.

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                            • #15
                              He wasn't going to contribute any of his money at all.  The idea behind it was for me to contribute to it throughout the year when I could plus take the money I was already collecting from him for car insurance and put that in there.

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