College age children opening 1st Roth IRA Account

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Nyc1967
Posts: 191
Joined: Thu Feb 20, 2014 8:11 am

College age children opening 1st Roth IRA Account

Post by Nyc1967 »

Good morning everyone,

I have suggested that my two children (18, 20) open up their 1st Roth IRA with Vanguard. I am thinking they should open a Roth Target Date account. They will each be opening up with $1000.00 and hopefully add some money each year. They have both work part-time so have the money to open it up.

Do you think a Target Date Account is a good option for a 1st timer?

Thanks for any input.
livesoft
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Re: College age children opening 1st Roth IRA Account

Post by livesoft »

Yes, that's what my kids have done. Sounds perfect to me. And now that my kids are older it is also what they continue to do. One of them with a 401(k) also uses Target Retirement funds there.
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lakpr
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Re: College age children opening 1st Roth IRA Account

Post by lakpr »

Although the difference between a 90:10 portfolio (which is what the Target Date funds start with) and a 100% stocks portfolio is minuscule over the near term, I am a bit of purist ...and want to have 100% stocks in my Roth IRA account so that it can grow the maximum.

If it's the question of minimum investments and your kids are unable to meet the higher minimum for total stock market index, Fidelity has $1 minimum on its FSKAX and $0 minimum on FZROX. Consider Fidelity instead of Vanguard.
SchruteB&B
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Re: College age children opening 1st Roth IRA Account

Post by SchruteB&B »

You might have to open custodial IRAs if your state law requires the owner to be 21. This is what I did for my teens, although I used Schwab’s Target Date funds as the ER is the cheapest and there is no investment minimum.
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Watty
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Re: College age children opening 1st Roth IRA Account

Post by Watty »

The target date fund is a great choice for them but I really doubt that they are at a point where they can really afford to start their retirement savings unless they have some unusual situation like having some high paid internship. They may have higher priority things to save for right now like;

1) Emergency fund
2) Money to get into an apartment. The first and last months rent and security deposit can be a lot and then they would need some basic furniture.
3) College costs. Even if you are paying for it they will still have a lot of out of pocket costs.
4) Owning a car without a large car loan. One car repair could cost more than a thousand dollars.
5) Not having any credit card debt that they cannot pay off each month.
6) Saving for a house down-payment.

There is a lot more to having good personal finances than retirement savings so for now they may want to focus on the other things.
Katie
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Re: College age children opening 1st Roth IRA Account

Post by Katie »

I helped my nephew start his IRA account when he got his first summer job. He invested in a target date fund because it had a lower minimum than the other funds we'd consider. I might have suggested a total stock market fund, but I think the target date fund is a good choice as well.
smitcat
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Re: College age children opening 1st Roth IRA Account

Post by smitcat »

Watty wrote: Wed Jul 29, 2020 7:27 am The target date fund is a great choice for them but I really doubt that they are at a point where they can really afford to start their retirement savings unless they have some unusual situation like having some high paid internship. They may have higher priority things to save for right now like;

1) Emergency fund
2) Money to get into an apartment. The first and last months rent and security deposit can be a lot and then they would need some basic furniture.
3) College costs. Even if you are paying for it they will still have a lot of out of pocket costs.
4) Owning a car without a large car loan. One car repair could cost more than a thousand dollars.
5) Not having any credit card debt that they cannot pay off each month.
6) Saving for a house down-payment.

There is a lot more to having good personal finances than retirement savings so for now they may want to focus on the other things.
Our daughter started her Roth accounts while still in HS and continued thru college years with limited savings at the start and maxing them later on.
Now that she is employed full time she can no longer take full advantage of the Roths so that space may be limited in time and size.
Use it or lose it....
Pops1860
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Re: College age children opening 1st Roth IRA Account

Post by Pops1860 »

Watty wrote: Wed Jul 29, 2020 7:27 am The target date fund is a great choice for them but I really doubt that they are at a point where they can really afford to start their retirement savings unless they have some unusual situation like having some high paid internship. They may have higher priority things to save for right now like;

1) Emergency fund
...
A Roth IRA is a great emergency fund option. You can withdraw contributions (just not earnings) at any time, for any reason, without taxes or penalty.
The power of accurate observation is often called cynicism by those who do not have it. ~George Bernard Shaw
Wanderingwheelz
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Re: College age children opening 1st Roth IRA Account

Post by Wanderingwheelz »

Watty wrote: Wed Jul 29, 2020 7:27 am The target date fund is a great choice for them but I really doubt that they are at a point where they can really afford to start their retirement savings unless they have some unusual situation like having some high paid internship. They may have higher priority things to save for right now like;

1) Emergency fund
2) Money to get into an apartment. The first and last months rent and security deposit can be a lot and then they would need some basic furniture.
3) College costs. Even if you are paying for it they will still have a lot of out of pocket costs.
4) Owning a car without a large car loan. One car repair could cost more than a thousand dollars.
5) Not having any credit card debt that they cannot pay off each month.
6) Saving for a house down-payment.

There is a lot more to having good personal finances than retirement savings so for now they may want to focus on the other things.
With a daughter that just graduated from college I feel the same way. The only way I can rationalize having her fund retirement at 22 is if my wife and I help her buy some of the big ticket items she has coming up since she’s just starting out in life.

Also, she’s no different than most every other 22 year old and that is her job security is very low right now. Most of her friends she just graduated with don’t have any job.
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Watty
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Re: College age children opening 1st Roth IRA Account

Post by Watty »

smitcat wrote: Wed Jul 29, 2020 7:40 am Our daughter started her Roth accounts while still in HS and continued thru college years with limited savings at the start and maxing them later on.
Now that she is employed full time she can no longer take full advantage of the Roths so that space may be limited in time and size.
Use it or lose it....
This is true but a single person would need to have a MAGI of over $139,000 to have limitations on making Roth contributions. I did not crunch the numbers but with things like maxing out a 401k that would probably take a gross income of something like $170K to hit that limit. That is certainly possible but most people will not have an income that high.
02nz
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Re: College age children opening 1st Roth IRA Account

Post by 02nz »

OP, it's excellent that your children are getting a head start on retirement savings. Getting into the habit early is great. You may wish to consider giving them some sort of matching to allow them to contribute as much into the Roth IRA as possible (up to the amount of earned income), as they may not otherwise be able to contribute much.
Last edited by 02nz on Wed Jul 29, 2020 8:14 am, edited 1 time in total.
smitcat
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Re: College age children opening 1st Roth IRA Account

Post by smitcat »

Watty wrote: Wed Jul 29, 2020 8:07 am
smitcat wrote: Wed Jul 29, 2020 7:40 am Our daughter started her Roth accounts while still in HS and continued thru college years with limited savings at the start and maxing them later on.
Now that she is employed full time she can no longer take full advantage of the Roths so that space may be limited in time and size.
Use it or lose it....
This is true but a single person would need to have a MAGI of over $139,000 to have limitations on making Roth contributions. I did not crunch the numbers but with things like maxing out a 401k that would probably take a gross income of something like $170K to hit that limit. That is certainly possible but most people will not have an income that high.
"This is true but a single person would need to have a MAGI of over $139,000 to have limitations on making Roth contributions."
That is accurate - there is no 401K available.
smitcat
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Re: College age children opening 1st Roth IRA Account

Post by smitcat »

Wanderingwheelz wrote: Wed Jul 29, 2020 7:48 am
Watty wrote: Wed Jul 29, 2020 7:27 am The target date fund is a great choice for them but I really doubt that they are at a point where they can really afford to start their retirement savings unless they have some unusual situation like having some high paid internship. They may have higher priority things to save for right now like;

1) Emergency fund
2) Money to get into an apartment. The first and last months rent and security deposit can be a lot and then they would need some basic furniture.
3) College costs. Even if you are paying for it they will still have a lot of out of pocket costs.
4) Owning a car without a large car loan. One car repair could cost more than a thousand dollars.
5) Not having any credit card debt that they cannot pay off each month.
6) Saving for a house down-payment.

There is a lot more to having good personal finances than retirement savings so for now they may want to focus on the other things.
With a daughter that just graduated from college I feel the same way. The only way I can rationalize having her fund retirement at 22 is if my wife and I help her buy some of the big ticket items she has coming up since she’s just starting out in life.

Also, she’s no different than most every other 22 year old and that is her job security is very low right now. Most of her friends she just graduated with don’t have any job.
"Also, she’s no different than most every other 22 year old and that is her job security is very low right now."
Noted - but the OP's kids are 18 and 20

"With a daughter that just graduated from college I feel the same way. The only way I can rationalize having her fund retirement at 22 is if my wife and I help her buy some of the big ticket items she has coming up since she’s just starting out in life."
Yes - good point, we did that as well. No better way to save than the Roth if you are presented with the opportunity and have the means to do so.
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TomatoTomahto
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Re: College age children opening 1st Roth IRA Account

Post by TomatoTomahto »

02nz wrote: Wed Jul 29, 2020 8:14 am OP, it's excellent that your children are getting a head start on retirement savings. Getting into the habit early is great. You may wish to consider giving them some sort of matching to allow them to contribute as much into the Roth IRA as possible (up to the amount of earned income), as they may not otherwise be able to contribute much.
+1

I “bribed” my kids by a very generous match. The launched one does a backdoor Roth now, without prompting or parental incentives, in addition to full utilization of 401k. He might have done so regardless of bribery, but it has turned out well.
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h82goslw
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Re: College age children opening 1st Roth IRA Account

Post by h82goslw »

TomatoTomahto wrote: Wed Jul 29, 2020 9:31 am
02nz wrote: Wed Jul 29, 2020 8:14 am OP, it's excellent that your children are getting a head start on retirement savings. Getting into the habit early is great. You may wish to consider giving them some sort of matching to allow them to contribute as much into the Roth IRA as possible (up to the amount of earned income), as they may not otherwise be able to contribute much.
+1

I “bribed” my kids by a very generous match. The launched one does a backdoor Roth now, without prompting or parental incentives, in addition to full utilization of 401k. He might have done so regardless of bribery, but it has turned out well.

Wow this is a great idea. I’m going to do this today with my kids who are working part time while in college.
bloom2708
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Re: College age children opening 1st Roth IRA Account

Post by bloom2708 »

Make sure they have >$1,000 in "earned income" from a W2 or 1099 job.

As soon as our oldest had a W2 job and was 18, I matched her $1,000 with another $1,000. Great to start early.
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BuckyBadger
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Re: College age children opening 1st Roth IRA Account

Post by BuckyBadger »

My dad matched my contributions 100% and I plan on doing something similar for my daughter when the time comes. Even if they don't put ALL their savings in there (keeping some for car, apartment, etc) putting a little in makes it easier to keep going, and even a little will grow over time.

I also think a target date fund is perfect. Perhaps not 100% as efficient as it possibly could be, but very simple until they have more accounts to juggle.

I kept everything in target date funds even when I started my own 403b, and didn't change until my husband and I co-mingled accounts and I decided to improve efficiency over all our accounts as a whole.
Flora
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Re: College age children opening 1st Roth IRA Account

Post by Flora »

I love Roth IRAs for working kids!

When my oldest was a toddler he contributed his W-2 Box 1 earnings to a traditional IRA and subsequently converted the balance to a Roth in 1998 when Roths were established.
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Watty
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Re: College age children opening 1st Roth IRA Account

Post by Watty »

I would be cautious about funding your kids retirement accounts unless you already have enough that you can retire today. By far one of the best financial things things you can do for your kids is to have your own finances in order so that they do not ever need to support you when you are elderly. I have know people that needed to financially support their parents. They love them but it is hard on them, and especially their spouses to see a lot of the families resources being used to support the inlaws. Even if you are on track to have a good retirement "stuff happens" that can cause major problems.
smitcat
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Re: College age children opening 1st Roth IRA Account

Post by smitcat »

Watty wrote: Wed Jul 29, 2020 11:26 am I would be cautious about funding your kids retirement accounts unless you already have enough that you can retire today. By far one of the best financial things things you can do for your kids is to have your own finances in order so that they do not ever need to support you when you are elderly. I have know people that needed to financially support their parents. They love them but it is hard on them, and especially their spouses to see a lot of the families resources being used to support the inlaws. Even if you are on track to have a good retirement "stuff happens" that can cause major problems.
"I have know people that needed to financially support their parents"
Yes - that happened with us as well.

"Even if you are on track to have a good retirement "stuff happens" that can cause major problems."
Not an issue.
Topic Author
Nyc1967
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Re: College age children opening 1st Roth IRA Account

Post by Nyc1967 »

Thanks everyone for your opinions :)
Dandy
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Re: College age children opening 1st Roth IRA Account

Post by Dandy »

I would use a TD fund with a moderate equity allocation vs some far dated one. Investing is tricky for experienced investors but even more so for newbies. Seeing $1000 go to $600 could leave a hard to counter fear of investing that could last a lifetime.

I started my kids with the Vanguard Star Fund (no TD funds existed) it worked out fine. They are adults and still don't show much interest in investing from what I can tell.
JD2775
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Re: College age children opening 1st Roth IRA Account

Post by JD2775 »

Not much to add aside from I think it's great you are encouraging them at that age. I wish I had someone who did that for me at that age
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