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Have Your Child Kick Into A Roth With A Reward To Boot

Suppose your teenage child lines up an after-school job and is raking in the money.  Your progeny might have an eye on the latest X-Box or iPhone, but there are plenty of other ways to spend that hard-earned cash. 

Crazy as it might sound, you could encourage your child to deposit some of the funds in a Roth IRA.

Why would a high school student contribute to a Roth?  This is a good time to teach your child about the benefits of tax-advantaged accounts.  If your 17-year-old puts away $5,500 each year (the current maximum) and receives a hypothetical 7% annual return, the stash will grow to a staggering $2,235,909 by the time he or she is ready to retire at age 67! 

What's more, future distributions from a Roth may be 100% tax-free.  Although you generally have to wait until age 59½ to qualify for this treatment, earlier distributions may be wholly or partially tax-free under certain circumstances. 

Finally, if you want to take some, or all, of the sting out of the situation, you can give your teenager a cash gift for up to the amount of the Roth contribution.  This is perfectly legal as long as the child has earnings from a job. Plus, there's no gift tax liability because the maximum IRA contribution is less than the $14,000 a year you can give without tax liability. Everybody wins.

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