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14-yo Daughter - Roth IRA (1 Viewer)

Johnny Rock

Footballguy
My 14-yo daughter has been working at our office cleaning about every other week and is earning about $1,500 a year. I have her permission to start a Roth IRA Custodial Account for her.

After doing a bit of research, I'm thinking about going with Charles Schwab https://www.nerdwallet.com/blog/investing/charles-schwab-review/

QUICK FACTS

  • Commissions: $4.95
  • Account minimum: $1,000
  • Charles Schwab is best for:
  • Beginner investors.
  • Advanced traders.
  • Investors seeking commission-free ETFs.
  • Those who value no-minimum index funds.
  • Investors who rely on premium research.
Probably choose no-load mutual funds mostly but it would be cool to have a few individual stocks too, such as an Apple, or a Biotech/Nano/NextGen stock. Which "Forever" stock or two would you recommend for a young person with a long horizon? Anybody else doing this with your kids to teach them about finance and compounding interest as well as get them started on financial independence?

 
Personally, I would encourage her to save money for her first car and then college....before retirement. 

 
Unless she has an interest in understanding how the markets work I don't see a reason to invest in anything other than index funds. My 19 year old son just opened up a Roth through Vanguard and he didn't really care about what he was investing in, he just wanted to start putting money away now. 

 
Personally, I would encourage her to save money for her first car and then college....before retirement. 
She can save for this and a car. She won't even miss it. And since her income is so low, the contributions are essentially tax-free when deposited and tax-free at withdrawal, if the current rules stay the same. The compounding by starting so young, even if she doesn't contribute every year, is glorious.

If I understand correctly this amount can be used for college (value above contributions is taxed) if desired but doesn't count against you in financial aid calculations except as additional income in calculations the year after it's withdrawn. 

 
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13 yr old son wasn't happy with a couple grand sitting in his bank account only making 1%.

Bought some Amazon stock a few months ago and its doing quite well. Money he'll use to buy his first car.

Time is in his side and he gets some experience in the market.

 
13 yr old son wasn't happy with a couple grand sitting in his bank account only making 1%.

Bought some Amazon stock a few months ago and its doing quite well. Money he'll use to buy his first car.

Time is in his side and he gets some experience in the market.
Maybe you can manage his money forever and he never has to grow up. It's a Win Win for everyone.

 
She can save for this and a car. She won't even miss it. And since her income is so low, the contributions are essentially tax-free when deposited and tax-free at withdrawal, if the current rules stay the same. The compounding by starting so young, even if she doesn't contribute every year, is glorious.

If I understand correctly this amount can be used for college (value above contributions is taxed) if desired but doesn't count against you in financial aid calculations except as additional income in calculations the year after it's withdrawn. 
Good job consulting with other people besides her. It's only a little bit of money "she won't miss". Who cares what she thinks am I right? 

 
My 14-yo daughter has been working at our office cleaning about every other week and is earning about $1,500 a year. I have her permission to start a Roth IRA Custodial Account for her.

After doing a bit of research, I'm thinking about going with Charles Schwab https://www.nerdwallet.com/blog/investing/charles-schwab-review/

QUICK FACTS

  • Commissions: $4.95
  • Account minimum: $1,000
  • Charles Schwab is best for:
  • Beginner investors.
  • Advanced traders.
  • Investors seeking commission-free ETFs.
  • Those who value no-minimum index funds.
  • Investors who rely on premium research.
Probably choose no-load mutual funds mostly but it would be cool to have a few individual stocks too, such as an Apple, or a Biotech/Nano/NextGen stock. Which "Forever" stock or two would you recommend for a young person with a long horizon? Anybody else doing this with your kids to teach them about finance and compounding interest as well as get them started on financial independence?
You should ridiculously overpay her to minimize taxes.  She's going to be living in your basement until she's 40 anyway at this point.

 
I like Vanguard for my 401k, but for this purpose they fall short on a few areas. https://www.nerdwallet.com/blog/investing/vanguard-review/

Fund minimums of $1,000

Annual account fee $20

No trading platform or app, although we won't be trading much. 

No research or data

Low number of commission-free ETFs

Higher trading fees. 
Not sure what information you found, but the things you listed all seem wrong. There are minimums on Vanguard funds, no biggie. Help her out. I've never had an account fee. I use an app all the time. The last couple trades I made were on the app. Plenty of data, just search the ticker. You won't find commission free anywhere to my knowledge. Whenever you buy a Vanguard fund, it costs nothing. Trading fees are $7 when you switch to an account you can trade in.

 
Unless she has an interest in understanding how the markets work I don't see a reason to invest in anything other than index funds. My 19 year old son just opened up a Roth through Vanguard and he didn't really care about what he was investing in, he just wanted to start putting money away now. 
Agree with this. Time in the market and compounding is so very important. 

 
What good is that 401K going to do her when she's in her 30's , dumpster-diving for half empty beer cans, and saving up for polo ponies to help kick her habits?

 
My friend had a good idea with his teenager.  He matched half whatever the kid put in the Roth IRA with $$$.  Kid put $100 in his Roth, he gave him $50 in cash. 

At the end of the year the most it could cost him was $2750, seemed like a good idea to educate his son on the importance of saving and investing while also rewarding the kid for doing so. 

 
My friend had a good idea with his teenager.  He matched half whatever the kid put in the Roth IRA with $$$.  Kid put $100 in his Roth, he gave him $50 in cash. 

At the end of the year the most it could cost him was $2750, seemed like a good idea to educate his son on the importance of saving and investing while also rewarding the kid for doing so. 
My parents used to double whatever portion of my allowance I opted to save and put it in an UGMA account.  By the time I was in college there was a pretty decent amount even if it was only 10-20 dollars at a time. I am convinced this is what set my mindset in regards to spending money responsibly and ultimately led to my career in finance. 

I am doing the same with my 5 year-olds right now, although am having a hard time convincing them that saving is more important than Pokemon cards.

As far as the OP is concerned, it's definitely a good time for her to start a Roth since her tax bracket is 0%, but in my experience people do not leave enough of a safety net in non-qualified accounts and are forced to raid their retirement accounts when things get tight.  I would encourage her to save in other places besides putting 100% into a retirement account.

 
Johnny Rock said:
She can save for this and a car. She won't even miss it. And since her income is so low, the contributions are essentially tax-free when deposited and tax-free at withdrawal, if the current rules stay the same. The compounding by starting so young, even if she doesn't contribute every year, is glorious.

If I understand correctly this amount can be used for college (value above contributions is taxed) if desired but doesn't count against you in financial aid calculations except as additional income in calculations the year after it's withdrawn. 
With all due respect, if she's only making $1500/year, she won't be saving much in her Roth and for her car. 

Also, keep in mind that she's a 14 year old and should definitely have some money available for fun stuff. 

And on a final note, I'm all for long term investing but keep in mind that the market is at all time highs. It would suck if we had a temporary dip that resulted in her getting discouraged about investing in the stock market forever.

Regardless what you two decide, you're doing a great thing by teaching her about long term investing. 

Good luck.

 
=Smackdown= said:
13 yr old son wasn't happy with a couple grand sitting in his bank account only making 1%.

Bought some Amazon stock a few months ago and its doing quite well. Money he'll use to buy his first car.

Time is in his side and he gets some experience in the market.
You are likely teaching him the wrong things in my opinion. Somewhat akin to using his money to bet the NFL, he does well and turns his $1000 into $2500. 

The biggest risk risk for a hopeful day trader is early success 

 
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Vanilla Guerrilla said:
What good is that 401K going to do her when she's in her 30's , dumpster-diving for half empty beer cans, and saving up for polo ponies to help kick her habits?
Principal of a Roth IRA can be withdrawn tax and penalty free.

 
Doctor Detroit said:
My friend had a good idea with his teenager.  He matched half whatever the kid put in the Roth IRA with $$$.  Kid put $100 in his Roth, he gave him $50 in cash. 

At the end of the year the most it could cost him was $2750, seemed like a good idea to educate his son on the importance of saving and investing while also rewarding the kid for doing so. 
I like this idea a lot just to get by 8 year old to think more about saving.  Currently, she wants to spend everything on things she forgets about in a few days like stuffed animals.   My ten year old is very good with saving, but I the other one needs some help.   

 
Vanilla Guerrilla said:
You should ridiculously overpay her to minimize taxes.  She's going to be living in your basement until she's 40 anyway at this point.
May have been a joke, but in case anyone thinks otherwise, this is illegal and very easy for the IRS to detect 

 
eoMMan said:
Personally, I would encourage her to save money for her first car and then college....before retirement. 
Not in the case of a Roth.  As soon as you have taxable income, you should max out the Roth.  Every.  Single.  Year.  Especially when you're young.  In your case, if she wants to save for a car or college, that's fine...but you should max a Roth out for her if she's got the reportable income.  At some point down the road, she'll likely earn too much to contribute any more.  The fact that Roths are tax-free on qualified withdraw basically means that, while you pay taxes on the initial contribution, you don't pay on the withdraw or the appreciation in the account.  When you're young, this matters even more because that money has more years to appreciate.

I'll find a way for my kid to have taxable income equal or greater than the Roth amount as soon as I can...and once he does, I'll make sure he maxes out his Roth.  Even if it means I duplicate his earnings so he can spend it too...it's just good financial planning.  Because of the back-end tax-free status, they're pure gold.

 
Doctor Detroit said:
If you understand compounding interest, and the probable life expectancy of a 14-year-old in 2017, you'd agree with me. :thumbup:
This.  My parents made sure I maxed out my Roth contribution every year until I got a "real" job, then I maxed it out until I hit the income limit and couldn't anymore (excluding loopholes).  Now my early contributions are well into the 6 figures...that's tax free money when I retire, and it's still got 20+ years to go.

 
RokNRole said:
Good job consulting with other people besides her. It's only a little bit of money "she won't miss". Who cares what she thinks am I right? 
She agreed to it. And she's a smart girl so she gets it. She's not a spender and could care less if she has $100 or $3,000 in her bank account. 

She also trusts me and knows that if I'm recommending this it's probably a smart decision even if she doesn't fully understand. In fact, she didn't even really need to think about it and I didn't have to go for a hard sell. 

 
Mario Kart said:
Not sure what information you found, but the things you listed all seem wrong. There are minimums on Vanguard funds, no biggie. Help her out. I've never had an account fee. I use an app all the time. The last couple trades I made were on the app. Plenty of data, just search the ticker. You won't find commission free anywhere to my knowledge. Whenever you buy a Vanguard fund, it costs nothing. Trading fees are $7 when you switch to an account you can trade in.
Thanks. I'll look at this further. Higher balances above say $50k give more perks. It seems Vanguard isn't catering to these types of beginner products as much as others. We'll see. 

 
RokNRole said:
Good job consulting with other people besides her. It's only a little bit of money "she won't miss". Who cares what she thinks am I right? 
Imagine if your parents put aside some of your money when you were younger.  Things may have been a little easier for you right now. 

 
Not in the case of a Roth.  As soon as you have taxable income, you should max out the Roth.  Every.  Single.  Year.  Especially when you're young.  In your case, if she wants to save for a car or college, that's fine...but you should max a Roth out for her if she's got the reportable income.  At some point down the road, she'll likely earn too much to contribute any more.  The fact that Roths are tax-free on qualified withdraw basically means that, while you pay taxes on the initial contribution, you don't pay on the withdraw or the appreciation in the account.  When you're young, this matters even more because that money has more years to appreciate.

I'll find a way for my kid to have taxable income equal or greater than the Roth amount as soon as I can...and once he does, I'll make sure he maxes out his Roth.  Even if it means I duplicate his earnings so he can spend it too...it's just good financial planning.  Because of the back-end tax-free status, they're pure gold.
Maxing out the Roth is a great idea but not sure if that advice really applies to a 14 year old that is working 2 days/month.  Once a young person starts working part-time in HS (over 12 hours/week for example), I could get behind the idea of a Roth.  In this case, I would put that small amount of money that she is earning each year towards car and college savings.  

 
eoMMan said:
Personally, I would encourage her to save money for her first car and then college....before retirement. 
Depends, you can always get financing for a car or college - you can't really get financing for retirement.

 
Marking this thread as my wife and I recently opened a Roth IRA for our daughter, who works a few hours a month on the family business.  

We put everything into index funds, but after reading the OP I'm wondering if letting the kid pick an individual stock or two and put 5-10% of the money in it will engage her in the process more and get her more curious about investing and how retirement savings works.  

 
Christo said:
No, it's not. She's 14, she's got plenty of time to worry about adult ####. Let her enjoy her money.
That's the thing. She's not worried about money. Open the account and forget about it. 

 
Vanilla Guerrilla said:
What good is that 401K going to do her when she's in her 30's , dumpster-diving for half empty beer cans, and saving up for polo ponies to help kick her habits?
But at least she may have a little cash in retirement to support her habit. 

 

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