Starting Retirement Fund for Child

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HonBee
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Starting Retirement Fund for Child

Post by HonBee » Mon Dec 24, 2012 7:40 am

I'd like to start a retirement fund for my son who's in his senior year at college. I'd make the first investment
to get him started with $1,000. I didn't start saving for retirement until later in life. I'd like to make sure
he doesn't make that mistake. I'm looking for suggestions on a fund to open that would take $1,000 as an opening
amount. Thanks very much for the suggestions.

Johm221122
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Re: Starting Retirement Fund for Child

Post by Johm221122 » Mon Dec 24, 2012 7:44 am

Try vanguard retirement fund,best in Roth if he has income
https://personal.vanguard.com/us/funds/ ... rgetAnchor
John

livesoft
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Re: Starting Retirement Fund for Child

Post by livesoft » Mon Dec 24, 2012 8:00 am

If your son has earned income, then he can have a Roth IRA and you can give him the money to contribute to the Roth IRA if he has already spent his earned income and did not contribute it to a Roth IRA. I do this for my child.

A Vanguard Target Retirement fund would be ideal for this Roth IRA to start with, but you should let your son know that he might want to change the fund as he grows older and his overall portfolio needs to change. Don't tie him down with your fund selection.
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sscritic
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Re: Starting Retirement Fund for Child

Post by sscritic » Mon Dec 24, 2012 8:32 am

livesoft wrote:If your son has earned income, then he can have a Roth IRA and you can give him the money to contribute to the Roth IRA if he has already spent his earned income and did not contribute it to a Roth IRA. I do this for my child.
Or tell him you will give him $1000 cash if he can show you paperwork to prove that he opened his own Roth IRA and deposited $1000 in it. Teaching moment and all that. Lessons to learn:

1) He should be a saver, not a spender; if it takes a while for him to save the $1000, so be it.
(If he has already learned this lesson, then he just opens an account with his already saved $1000.)
2) His retirement will come from him, not from you.
3) Vanguard isn't that hard to deal with. Paperwork is part of life.

Dandy
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Re: Starting Retirement Fund for Child

Post by Dandy » Mon Dec 24, 2012 9:19 am

Great Idea. This sends a good message to your son at a time when there are competing things for his attention. Hopefully, with your start and example he will continue the savings for retirement. Can't tell you how many of our friends confess that they didn't start saving for retirement until very late. I started my daughters off with the Star fund - at that time it was the only VG fund with $1000 min. Still a good fund but now Target Retirement funds are often a better choice.

sscritic
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Re: Starting Retirement Fund for Child

Post by sscritic » Mon Dec 24, 2012 9:25 am

Dandy wrote:Great Idea. This sends a good message to your son at a time when there are competing things for his attention.
What message? That mom has my retirement covered, so I don't need to save?

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abuss368
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Re: Starting Retirement Fund for Child

Post by abuss368 » Mon Dec 24, 2012 9:30 am

Offer that he deposits $1,000 and you will match it.

Have him do all the paperwork so he has an understanding and hopefully develops an interest.

That said I would consider the simplicity and effectiveness of a Target Date Retirement fund.
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sscritic
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Re: Starting Retirement Fund for Child

Post by sscritic » Mon Dec 24, 2012 9:31 am

A better message:

Show your son your retirement accounts with $3 million saved. Tell him you got there bit by bit by saving.

Of course that might inspire him to save nothing as he knows there is no way you are going to spend the $3 million in your lifetime; once again, he will learn that you have his retirement covered.

Hmm. What to do? It's a puzzlement.

livesoft
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Re: Starting Retirement Fund for Child

Post by livesoft » Mon Dec 24, 2012 9:35 am

When I was a senior in college and driving a truck to be able to make tuition payments, I couldn't even spare $200 to put into my retirement plan much less afford Ramen noodles to eat.

I think I will tell my child that I am funding the Roth for them to pay for my retirement, so they should worry about their own retirement some other way.
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HonBee
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Re: Starting Retirement Fund for Child

Post by HonBee » Mon Dec 24, 2012 10:23 am

OP here.... wanted to thank you all for your suggestions. I particularly like the idea of
a target date fund. Not sure why the Roth would be preferred over a non-Roth.... but I can
research that a bit. Thank you again.
Happy holidays!!

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mhc
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Re: Starting Retirement Fund for Child

Post by mhc » Mon Dec 24, 2012 10:37 am

HonBee wrote:OP here.... wanted to thank you all for your suggestions. I particularly like the idea of
a target date fund. Not sure why the Roth would be preferred over a non-Roth.... but I can
research that a bit. Thank you again.
Happy holidays!!
Contributions to a Roth are post-income tax. There will never be any taxes paid on the money when it is taken out, assuming it is a qualified distribution. This avoids cap gains and dividend taxes.

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grabiner
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Re: Starting Retirement Fund for Child

Post by grabiner » Mon Dec 24, 2012 10:44 am

mhc wrote:
HonBee wrote:OP here.... wanted to thank you all for your suggestions. I particularly like the idea of
a target date fund. Not sure why the Roth would be preferred over a non-Roth.... but I can
research that a bit. Thank you again.
Happy holidays!!
Contributions to a Roth are post-income tax. There will never be any taxes paid on the money when it is taken out, assuming it is a qualified distribution. This avoids cap gains and dividend taxes.
Conversely, contributions to a traditional IRA are tax-deductible, but your son has very little income and thus won't benefit much from a tax deduction. (Next year, if he gets a high-paying job out of college rather than just his summer job, it might be different.)
Wiki David Grabiner

RonF
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Re: Starting Retirement Fund for Child

Post by RonF » Mon Dec 24, 2012 11:27 am

My advice: Strongly encourage your children to get part-time jobs early (after school, during summer, etc.). Give them an "incentive"-- lots of chores at home or a part-time job. Help them create a Roth and contribute an amount equivalent to their first $5k of their income. If they work for a company, have them allocate any funds beyond the first $5k into the employer's 401k plan. Have them rollover the 401k into a Roth while their income is low.

During their teens and early 20s, agree to reimburse them for the amount they contribute, so they feel they aren't working for nothing. It is unrealistic to expect kids to understand the value of retirement saving at 15, 16, or 17 years of age, so you've got to give them some incentives. This is what I would have done 20 years ago, had I known about the importance of retirement saving and other societal changes. With compounding, a relatively small amount of assistance at an early age translates to significant assistance for retirement.

We baby boomers have the benefit of pensions or, at the very least, social security. We also had two decades of 10+% returns. Pensions are all but gone, social security is unlikely to exist as is in 30 years, and the days of 10+% annual returns are over. College costs continue to rise faster than the rate of inflation, the funding for scholarships and grants continues to fall (relative to the demand), the future of the federal pell grant program is uncertain, and college loans are getting more expensive...yet it is increasingly difficult for younger folks to get jobs without a masters or a bachelors in a desirable field (engineering, etc) and some work experience. Money spent paying off college loans, or money spent on a 529 for a child, is money that isn't being saved for retirement -- hence the importance of saving early.

These days, if you don't start saving early for retirement, either you or your children (and potentially grandchildren) will face tough times ahead. When you bring a new child into this world, it is your responsibility to give them and their children the best chance to succeed. Encouraging and incentivizing your children to save for retirement early is now more important than ever, and is a core part of every parent's responsibility, in my opinion.
Last edited by RonF on Mon Dec 24, 2012 10:19 pm, edited 3 times in total.

Dandy
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Re: Starting Retirement Fund for Child

Post by Dandy » Mon Dec 24, 2012 1:53 pm

What message? That mom has my retirement covered, so I don't need to save?

I guess that is one message that a child can take especially if taken to extreme and depending on the child. You can certainly spoil the child by giving them too much. I also have seen that -- but usually that kind of spoiling involves cars, toys, clothes, jewlery etc. I don't know any parents that have such children that spoiled them by helping them save for retirement. That is very much delayed gratification - not what spoiled or irresponsible children demand (or usually are given).

There is also a point that starting an account and having them watch "their" money grow really helps them get interested in investing for their future. As my daughters grew I encouraged them to focus on retirement savings (often a hard sell when they are High School or College age). When they started to earn more than a summer job I would offer to match their contribution - now they have decent retirement accounts only partly funded by us and are mature enough now to appreciate the good start their parents gave them. Early on I gave them some funding ear marked for retirement savings. One year I just gave them the money with "no strings attached". They both put it into their IRA. I am fortunate that my approach with my children worked out so well. Hopefully, your approach with your children worked out well also.

umfundi
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Re: Starting Retirement Fund for Child

Post by umfundi » Mon Dec 24, 2012 4:25 pm

HonBee wrote:I'd like to start a retirement fund for my son who's in his senior year at college. I'd make the first investment
to get him started with $1,000. I didn't start saving for retirement until later in life. I'd like to make sure
he doesn't make that mistake. I'm looking for suggestions on a fund to open that would take $1,000 as an opening
amount. Thanks very much for the suggestions.
I have Vanguard Retirement Target 2060 for my sons' IRAs. They are age 21 and 17. That fund has a minimum investment of $1,000. I think it is a perfect fit for what you want to do.

Here's the learning moment: Make a simple spreadsheet with a constant yearly investment ($5,000) and some reasonable rate of return (6%). Run it out from age 18 to age 70. Note that the proceeds of the amount saved by age 30 will handily exceed the proceeds of the amount saved in the next 40 years, from age 31 to 70.

Total at age 70: $360,000
Total due to savings to age 30: $200,600
Total due to savings age 31-70: $159,400

I showed my sons the spreadsheet. They were impressed. (In fact, the post-30 contribution will NEVER catch up, no matter how old you are.)

I have been funding their Roth IRAs to the extent of their earned income (or the max allowed contribution) and intend to continue doing so.

It is such a compelling thing.

Keith
Déjà Vu is not a prediction

letsgobobby
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Re: Starting Retirement Fund for Child

Post by letsgobobby » Mon Dec 24, 2012 7:34 pm

I made $1000 as a teenager one year. My dad matched my $500 contribution to an IRA 1:1 so together we made the full 100% contribution equal to my earned income. It seems a good compromise and my IRAs have grown steadily ever since. The message was learned, I think.

donall
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Re: Starting Retirement Fund for Child

Post by donall » Tue Dec 25, 2012 10:40 am

Every one of these suggestions help to start good habits early.

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