If you have kids that have earned some income this year and quickly spent it on an XBox 360 or the new Nintendo Wii, you have an opportunity to help them along in their retirement by giving them a gift and having them put that amount towards their Roth IRA. You’re allowed to give anyone else $12,000 tax free each year (if you give more, you are responsible for paying tax – not the recipient) and so this could be an opportunity to give your children some money and have them put it towards a Roth IRA (albeit early).
There are a few important things to remember:
- The maximum amount they’re allowed to contribute is how much they earned (or $4,000 – the limit for everyone).
- That money is theirs and you won’t be able to control what they do with it. They’ll be able to withdraw it (and be penalized) without consulting with you – so keep that in mind.