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A couple of days ago, I'll put on Twitter and Instagram about how to get your child a lot of money in their retirement. So what I said was you could turn eight How to turn eight thousand dollars into three hundred and twenty five thousand tax free for your child. So here's the steps. So you open a RAWIRA for your child. You put two thousand annually in between the ages of fourteen and seventeen and let it sit until
they reach age sixty. Assuming an average of nine percent a year, that will equal three hundred and twenty five thousand dollars tax free at the end from your eight thousand dollars investment, and that will be a three thousand, nine hundred and sixty eight percent rate of return. So let me explain this in a little bit more detail. So, okay, and when a child starts to work, right of working age, you can open up a retirement account for your child,
an IRA or raw iray. I used raw ira because a raw fira is not tax when you take the money out. Now, that's why I used age fourteen to seventeen because in most states, fourteen is when you can start working, and you know, seventeen is like kind of when you kind of phase out out of high school and now you're kind of going into the eighteen. You're an adult at that point. So not technically my responsibility. Just keep putting money into your account. So I did.
I did. If you put money in for four years, right, two thousand dollars, which I think is a reasonable amount. I didn't want to do something that was crazy, like you know, and there's limits of how much money you can put into an IRA anyway, right, And then so how I got the nine percent a year was that's the average for the S and P five hundred over the last twenty years. So I think that that's a very realistic expectation going forward. And that's like just SMP.
We're not even counting QQQ or you know, tech stocks, which I've done obviously much much better than that, right, and that would give the child three hundred and twenty five thousand dollars. So one of these, you know, is there's always criticism for everything because it's America. So some people were like, well, damn, they got to wait until they's sixty years old. The whole point of it is that it's a retirement account, right, it's like trust almost
in a sense. And how many people would be mad if they when the data they turned sixty, they had three hundred and twenty five thousand dollars tax free, Like, who would be mad about that?
Yep?
Right, and it only cost you eight thousand dollars, right, So why would you not want to set your child up not to say that this is the only money that they're going to have, but it's something that you can do for their future, right to help Then people was like, well, inflation, three hundred and twenty five thousand dollars is not even going to be worth anything. Okay,
well better than nothing. It's better than nothing. And as I said, if you can do better than almost the fourth thousand percent rate of return over that timeframe tax free, which is actually a higher a higher rate of return because you have the factor in taxes, there's no taxes in it. I don't think that there's something that you should just throw away, right, And if you think that that's not enough money, then you could put in more money, right, you could put up to six thousand thinks sixty to
an IRA. But this is just the IRA play. I mean, you can do this with a non qualified account. Also, you can do it with a money. You can put one hundred thousand dollars a year if you if you want to, if you are blessed to have that much money, and you feel like, you know, three hundred and twenty five thousand dollars tax free is not enough, well you do the calculation and equal whatever you want to equal
a million. But the idea is that when you put money in early, there's a thing called compounding interest that works in your favor. And the longer that you can go without actually having to access that money, the more beneficiary will be in the long.
Run for the child.
So we talk about college savings a lot for children. That's important, but we haven't really spoken a lot about retirement savings for children. Like you could literally start and plan your child's retirement now, or like I said, just have an esteache for them so when they get to a point where they are at retirement, they have another source of money that can be added with. They they might have three million dollars on their own, okay, now
is other three hundred thousand right now? They can use this to buy a home in Ghana, right or they can use this to give to their grandchildren. They could do a variety of other things. Like nobody's ever going to turn down extra money. So that was something that you know, once again going back to my financial advising days, you know, I set iras up for people and then
I also set iras up for people's children sometimes. And another benefit for the entrepreneur is that you can actually start this type of program earlier than fourteen because as long as your child is working and actually doing a real job, so they could be nine years old, they could be ten years old, and the money so now you can put money aside and you can take it
from the salary that you're paying them. You can pay your child up to like twelve thousand semi dollars a year as an entrepreneur and get a tax right off for that money that you're paying them. Right, So now you can do the same play where you can actually like let's say you're paying them two thousand dollars a year, right and then the money that you're paying goes into a retirement account, So now you're getting a tax deduction and you're also being able to save for your child's
retirement as well. So that's a caveat in it for entrepreneurs. But even if you're not an entrepreneur and you just work a regular nine to five job, you're still able to put money away on a tax deferred basis that will grow and your child can access it later or in life tax free.
For the long term. I think the biggest lesson in the last four years just the longer you can invest and plan in terms of succession for the family, the better. So I know people may have some pushback for it, but like you said, who want Who wouldn't want an extra three hundred thousand or four hundred thousand upon retirement, and with the rate of inflation, you're you're going to need it.
Trust me, even with the regular face like what does that turn into? Like let's say it's two seventy five, right.
Like you still it was worth it.
It's still a great nest egg. And a lot of times, especially in our communities, when we approach retirement, right, yes, for your kids, but you're also taking care of the generation ahead of you a lot of times, right, and so you have an additional responsibility to not only take care of your family, but you know your parents or you know sometimes if you have aunts that took care of you, were responsible for you. Now you're taking care of them. So where are you getting that money from?
So it's always it's always always recommended to always plan for the future. Please plant for the future, plant for because you don't know.
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