First Person: I Refuse to Fund My Child’s Retirement Account

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I helped my son go online and open a Roth IRA when he started working a part-time job as a teenager. My role as a parent was to show him how to save for retirement, but not to do it for him. Some financial experts say the greatest gift a parent can give their child is the money to fund their Roth IRA accounts when they are young and struggling financially. I recently read an article by Forbes titled, "Make your kid rich with a Roth IRA." The author suggests a parent lets a child spend his or her money from a summer job as they normally would. If the child earns $4,000 as a lifeguard, for example, the parent would put $4,000 in the child's Roth IRA. As a parent, I did the exact opposite. I paid for my son's normal expenses, but then strongly encouraged him to save money for retirement in his late teens.

Getting in the 10 percent habit

Although my son didn't max out his Roth IRA, I thought it was more important for him to get into a habit. I encouraged him to be realistic. He saved 10 percent of his income in his Roth IRA, which still fell below the maximum contribution amount allowed. At the time, a person younger than 50 was able to contribute $5,500 a year into a Roth.

Motivating him to save

Low-income wage earners can receive tax credits for retirement savings contributions. I think the government wants to encourage people to save for their own retirement. If I funded my son's Roth IRA, he wouldn't learn anything. My son wasn't able to receive the tax credit while he was in college. Now that he is out of school, he may qualify for the tax credits for a few years until his salary increases. I am not going to take away the satisfaction he gets from saving on his own and being rewarded.

Working with a custodial Roth

When I helped my son open his Roth IRA, we had to open a custodial account because he was not yet 18. Each of our names appeared on the account with me as the custodian. Once he turned 18, we immediate contacted the discount brokerage firm and got the necessary paperwork to remove my name from his Roth IRA account.

Using the Roth for emergencies

Although it would be great for my son to never touch his Roth IRA until he is in his 60s, it's possible he might need the money he saved. I made sure he was educated about the Roth IRA advantages. He knows he can take out any money he contributed, but he can't withdrawal the growth without paying penalties, fees and taxes. He's treating his Roth partly as a retirement fund and partly as an emergency fund. He keeps some money in a money market and the rest in exchange-traded funds.

I don't regret the fact that I never funded my son's Roth IRA account because it's taught him to be a super saver. He would have a lot more money in his Roth if I had funded it for him. But he worked hard for every penny he has in his Roth. Because it's his hard-earned money, I know it will stay in there and grow.

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