Helping your kids save for retirement starts with financial education and discussing the importance of saving for their future. But, besides financial education, there are strategies that you can implement for them at a young age. The strategies can help them get a head start on their retirement savings.
Here are two strategies for saving for retirement that may be appropriate for your child, depending on your family’s situation:
Whole life insurance, also called cash-value life insurance, doesn’t expire, meaning your child can’t outlive it. Whole life insurance features a death benefit and a cash value, which accrues interest at a fixed rate. If one continues to pay the premiums, your child can tap into the cash value by taking a policy loan or a cash withdrawal later to help fund retirement. Here are some reasons why investing in a life insurance policy for your child may be an appropriate strategy:
Purchase life insurance when your child is young and healthy, a time in their life when they are more likely to receive coverage. Later in life, life insurance can reduce the financial hardship for their loved ones when they pass away. Life insurance can also be a vehicle for your child to leave an inheritance, fund funeral expenses, or protect their business as an adult.
Starting a Roth IRA for your child is another way to help your kids save for retirement. However, there are specific requirements to determine if you can use a Roth IRA as a retirement savings strategy for your child:
Consult your financial professional for account requirements, restrictions, and information needed to open a Roth IRA account.
529 plans are tax-advantaged savings vehicles designed to accumulate contributions and help pay for the beneficiary’s qualifying education expenses. Sometimes, 529 plans have unused funds after the beneficiary graduates or decide to discontinue their education.
You can move 529 plan monies to a Roth IRA that your child can use for retirement. When moving 529 plan monies to a Roth IRA, IRS contribution limits apply. The beneficiary (your child) must have earned income up to the amount converted. In 2024, if the 529 plan has been open for at least 15 years, up to $35,000 of those funds (for the beneficiary of the 529 accounts only) can be contributed to a Roth IRA, regardless of the beneficiary’s earning limit.
Before initiating a 529 plan to Roth IRA conversion, visit your financial and tax professionals to determine if this strategy suits your situation and to help ensure you understand the IRS rules.
Helping your kids save for retirement is a comprehensive strategy that may help them pursue their retirement goals. Your financial professional can answer questions about the strategies discussed in this article and if they are appropriate for your and your child’s situation. Contact them today!
Policy loans and withdrawals will reduce available cash values and death benefits and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. This article is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not intended to provide specific legal or tax advice and cannot be used to avoid penalties or to promote, market, or recommend any tax plan or arrangement. You are encouraged to consult your personal tax advisor or attorney. Guarantees are backed by the financial strength and claims-paying ability of the issuing company.
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