I helped my son open a Roth IRA retirement savings when he landed his first job in high school. I was more concerned that he got into the habit of saving for retirement at an early age than I was worried about his college tuition. Fortunately, he chose to work his way through college. A recent article by Reuter’s discussed a Roth Account for Youths Savings Act or RAYS Act which was introduced by lawmakers. The idea would be to expand the Roth IRA to include children. Of course, a baby would not need to have earned income to have a Roth IRA under this new scenario. As a parent, I feel it’s my job to teach my children about their different retirement savings options. Once I’m a grandparent, I might be able to add the RAYS account to my list.
Starting at an early age
I don’t know of any financial expert who recommends waiting as long as possible before saving for retirement. If lawmakers pass the RAYS Act, parents with earned income could contribute to their children’s Roth IRA accounts. Even grandparents could help the child max out their account at $5,500 each year.
Using the money for a first home
Just like with the Roth IRA today, the new Roth would allow money to be used for college or a home purchase. Even though my sons are too old to benefit from the RAYS plan, they can use their own Roth IRA accounts for a first-home purchase. If they decide to start families, my sons would be able to give their children a financial head start like no other saving vehicle out there today.
Building up net worth
According to Reuter’s, family wealth took a huge hit during the Great Recession. Helping my sons start saving at an earlier age will reverse some of the negative effects of the recession when our household net worth tumbled. In addition to a Roth-for-Kids, I’m informing my sons about the myRA plan introduced by Obama as a starter retirement account for younger people.
Having a real safety net
I am concerned about whether my children will have enough money for retirement due to the projected Social Security insolvency. A recent report by The Heritage Foundation suggests the program may become insolvent sooner than 2033. In fact, some project that Social Security will be insolvent by 2024. In just 10 years, retirees may see a cut in benefits of 23 percent, according to The Heritage Foundation. As a parent, it’s imperative that I help my children build a safety net in case they are unable to work in their old age.
When my sons become employed with companies that offer 401(k) plans, I plan to encourage them to sign up for the Roth 401(k) through automatic deductions from their paychecks. Since they started saving as children, they have gotten into the habit of living below their means.
More from this contributor:
Saving for my Future Self
I’m Happy in our Smaller Home
Four reasons I plan to Delay Retirement
