You know that the earlier you start saving for retirement the easier it is right? Not only do you have that many more months to save you also have that much more time in the markets. Time does amazing things to money. Imagine if you got started saving as a kid?
One of my friends has an 11 year old daughter that recently started a pet sitting business. She has been doing really well with it and has made just over $2,000 in the past year. Amazing really.
My friend is a Dave Ramsey fanatic. She did the debt snowball, she teaches FPU, she buys Total Money Makeover books by the case and hands them out to people. So you see why we are friends, right?
The other day we were hanging out and she mentioned how great her daughter is doing at her little business and Jackie over at the Debt Myth (who happened to be hanging out with us) says “Why don’t you have her invest some of that into a Roth?” What a fantastic idea!
Anyone who has earned income can contribute to an IRA. Yes, the 11 year old will have to file a tax return but it’s doubtful she will have to pay any taxes with only earning $2,000. Plus, what a great way to teach kids about money! Tax deductions, earned income, investing, planning for the future. Who couldn’t learn more about that stuff?
So I ran some quick numbers and if she saves $2,000 now she will have about $290,000 in 50 years. (10%, compounded monthly). And that’s just from a one time investment, imagine the power of it if she does it for a few years. Aww yeah.
If your child has a little business then this is definitely something to consider for them. If you have your own business you can hire your children at the age of 8 years old. That’s another way for them to have earned income. Remember, you can only contribute EARNED INCOME into an IRA. Birthday money from Grandma doesn’t count.
Another thought is if you are financially able to set something aside for them you could open a Roth for them and contribute to it yourself up to the amount of their earned income. They would still have to file a tax return in order to show their earned income, but they wouldn’t have to part with the money. But saving for your child’s retirement is absolutely last on the financial to do list. I just mention it for the sake of being complete.
Have you thought about getting your children to start saving for retirement?