19 yr old - IRA

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Investor1319
Posts: 8
Joined: Mon May 28, 2018 12:58 pm

19 yr old - IRA

Post by Investor1319 » Sun Jun 03, 2018 1:34 pm

Hi, My 19 year old son just got his first paying summer job and I'm thinking about encouraging him to open a Roth IRA with the money. He has birthday money saved up which he can use for his social life plus we give him a monthly allowance during the school year months for his college expenses and he has leftover money from this to use for his social life. I just have a few questions-

1. Should I have him open a Roth IRA?
2. I am thinking of having him invest the money in Vanguard ETF - VTI so he gets the total market index with no minimum investment. I want him to have the lowest expense ratio he can have and he definitely won't hit the $10K minimum for VTSAX. Do you agree or have other suggestions?
3. He has money he has saved up over the years from birthdays, holidays and allowance. I don't think he can put this money in the Roth IRA because he didn't earn it. Is that right? What would you do with this other money? Should he be investing in a taxable account and, if so, should be also invest this money in VTI?

Thanks so much for any help!!

Braje
Posts: 51
Joined: Wed Jun 03, 2015 10:06 pm

Re: 19 yr old - IRA

Post by Braje » Sun Jun 03, 2018 1:39 pm

He could contribute up to 5500 IF he has that much earned income for the year.

123
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Re: 19 yr old - IRA

Post by 123 » Sun Jun 03, 2018 1:39 pm

If he's 19 with his first job he really needs to have a chance to spend what he earns, he's only 19. He's too young to become a hermit.

I have no trouble with you matching (fully/partially) his earnings and him using that to open a Roth IRA.
Last edited by 123 on Sun Jun 03, 2018 1:40 pm, edited 1 time in total.
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Braje
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Re: 19 yr old - IRA

Post by Braje » Sun Jun 03, 2018 1:39 pm

He could contribute up to 5500 IF he has that much earned income for the year.

livesoft
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Re: 19 yr old - IRA

Post by livesoft » Sun Jun 03, 2018 1:48 pm

My kids had Roth IRAs from jobs. But ....

1. They opened the Roth IRAs after the summer, so they knew how much they had earned and could contribute to the Roth IRA. Don't jump the gun here because it won't matter much.

2. One invested in an ETF because the amount initially invested was below a fund minimum of $1,000. The other invested in a Vanguard Target Retirement fund where the fund minimum was $1,000.

3. We basically gave them the money to contribute in an amount equal to what they had earned. In reality, they spent what they had earned.
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retiredjg
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Re: 19 yr old - IRA

Post by retiredjg » Sun Jun 03, 2018 1:49 pm

Investor1319 wrote:
Sun Jun 03, 2018 1:34 pm
Hi, My 19 year old son just got his first paying summer job and I'm thinking about encouraging him to open a Roth IRA with the money. He has birthday money saved up which he can use for his social life plus we give him a monthly allowance during the school year months for his college expenses and he has leftover money from this to use for his social life. I just have a few questions-

1. Should I have him open a Roth IRA?
Roth IRA is a good choice, especially while he is in a very low tax bracket.

2. I am thinking of having him invest the money in Vanguard ETF - VTI so he gets the total market index with no minimum investment. I want him to have the lowest expense ratio he can have and he definitely won't hit the $10K minimum for VTSAX. Do you agree or have other suggestions?
I like the target funds because I think every portfolio needs some bonds. But that is a $1k minimum and I think you have a smaller starting amount in mind. VTI - Total Stock Index is a good a choice as any.

3. He has money he has saved up over the years from birthdays, holidays and allowance. I don't think he can put this money in the Roth IRA because he didn't earn it. Is that right? What would you do with this other money? Should he be investing in a taxable account and, if so, should be also invest this money in VTI?
No, it is not right. The money for the Roth IRA can come from anywhere. It just cannot be more than he actually earns during the year.

A 19 year old is going to need an emergency fund at some point. And money for apartment and utility deposits and maybe a downpayment on a car. Might as well start that now. Unless it is a large amount, I don't see any reason to do anything but high yield savings with that money he has saved over the years.

However, it would not hurt for him to have the experience of investing in a taxable account if there is money to spare. Maybe put a Total International Index in taxable or more Total Stock would be fine as well.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: 19 yr old - IRA

Post by delamer » Sun Jun 03, 2018 1:50 pm

He can put the entire dollar amount that he earns this summer into an IRA, up to $5500. The source of the money does not matter. We gifted our kids IRA money to them and let them keep their summer earnings for spending money. (I am not suggesting that you do this, just emphasizing that all the matters is the earned income.)

We went with a Roth too, since a 19-year-old is going to be at his lowest marginal tax bracket ever. Hopefully! :shock:

We are using one of the Vanguard Target Date funds for each kid — one 2055 and one 2060. The expenses are a bit higher than your choice, but they are more diversified because of the international stocks. Minimum investment is $1000.

But your plan makes sense also.

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Epsilon Delta
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Re: 19 yr old - IRA

Post by Epsilon Delta » Sun Jun 03, 2018 2:13 pm

The behavior of the young adults I know is such that if I were setting up an IRA for them I'd prefer a traditional mutual fund account that can only buy mutual funds from a reasonable company to a brokerage account where they can buy almost anything. That way the attention deficit* works to keep them in sane investments rather than the hyper activity* working to enrich brokers.

They can swap to a brokerage account anytime they are willing and able to spend the effort to switch. Which will probably be once I can no longer call them young adults without risking a punch in the nose.

I regret the fact that Vanguard has gotten rid of mutual fund accounts and would consider another company that offered them, if the cost of the account was less than I was paying at Vanguard in the '90 (and that's not all that high a bar).

* It's a joke folks. Sort of. :twisted:

Investor1319
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Re: 19 yr old - IRA

Post by Investor1319 » Sun Jun 03, 2018 2:49 pm

I like the idea of waiting until the end of the summer to see how much my son earns before investing in a Roth IRA. Let's just say he earns $1500 total. So, is he allowed to invest the $1500 in a Roth IRA and am I allowed to then match that money and gift him another $1500 for his Roth IRA so he would have $3000 total to invest? Also, is he allowed to match another $1500 with other money that he has saved over the years to make the total he can invest $4500? Or can the Roth only have $1500 total invested in it because that's what he earned?

delamer
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Re: 19 yr old - IRA

Post by delamer » Sun Jun 03, 2018 2:55 pm

Investor1319 wrote:
Sun Jun 03, 2018 2:49 pm
I like the idea of waiting until the end of the summer to see how much my son earns before investing in a Roth IRA. Let's just say he earns $1500 total. So, is he allowed to invest the $1500 in a Roth IRA and am I allowed to then match that money and gift him another $1500 for his Roth IRA so he would have $3000 total to invest? Also, is he allowed to match another $1500 with other money that he has saved over the years to make the total he can invest $4500? Or can the Roth only have $1500 total invested in it because that's what he earned?
The Roth can only have $1500 total invested in it because that is what he earned.

NoHeat
Posts: 159
Joined: Sun Sep 18, 2016 10:13 am

Re: 19 yr old - IRA

Post by NoHeat » Sun Jun 03, 2018 4:08 pm

delamer wrote:
Sun Jun 03, 2018 1:50 pm
We gifted our kids IRA money to them and let them keep their summer earnings for spending money.
Same here.

And the outcome has been good, in instilling a good habit.

My daughter, 24 and financially independent of me, now invests in her own 401k and Roth IRA, and proudly reports how much her retirement assets have grown, and how a calculator shows she’s on track to retirement.

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