Summer is almost here. Although the official beginning of Summer is a couple weeks away, many college and high school students are already have found summer employment and are hard at work. Others will be starting their summer jobs in the weeks to come.
Now is a good time to help these hard working young people get their retirement savings off to an early start. Parents and grandparents (uncles and aunts too) can contribute up to $5,500 to a young worker's Roth IRA. If properly invested, the funds can grow into hundreds of thousands of dollars by the time these youngsters retire at age 65 or 70. The funds can be withdrawn from the Roth account tax free after age 59 and a half.
This is an uncommon little loophole in our tax system that rewards people for working.
Contributions to Roth IRAs are subject to a dollar limit ($5,500 for 2014 for singles under the age of 50) and an earned income limit: Roth contributions cannot exceed the student's earnings from employment (including self-employment).
Most students probably need the money they earn in the summer for their education expenses. Without a little help from their families few students are able to take advantage of this tax planning opportunity. Once they are established in their careers, many of these young people are going to find that their incomes exceed the earnings thresholds under which contributions to Roth accounts are allowed, so now is the time to start thinking about this.
- Mark S Gleason CPA
www.lakes-cpa.com
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