Dallas County Living Well Magazine May/June 2916 | Page 23

• Monies can be withdrawn tax-free
if used for qualified education expenses.
Trust account: If you’d like to put
money aside to benefit multiple beneficiaries, and be able to place re-

As you look at different savings
options, there are a few things to
keep in mind:
• Are there yearly limits on contributions?
• Does the income level of the donor affect eligibility?
• Is the growth on the
monies taxable?
• When can you withdraw monies without penalty?
• What can I spend the
money on without penalty?
• At what age does the
minor have access to the
monies?
Time Value of Money
Compounding
The biggest benefit of
starting to save early for
your children and grandchildren is that it allows
you to maximize the time
value of money and compounding. Here’s an example of how significant
the impact can be:
For a newborn, you start
an account and begin
depositing $100 per
month. Using a 5% annual interest rate, compounded monthly, at
age 18 the balance is
$34,920. That could
definitely help with college education costs.

Sam and Pops

strictions on the use of the monies,
another option to consider is creating
a trust. This requires an attorney to
draft the document and customize it
for your goals.

Kids can also start saving for retirement early
to take advantage of tax
benefits (it’s never too early!). Or family members can reward the industrious child by matching their income.
For kids that are working and have
earned income, Roth IRAs are an ad-

ditional savings vehicle that’s geared
for retirement:
• The current contribution limit is
$5,500 per year, for 2016.
• Monies grow tax-free, and are
available without penalty at age
59½ if they have been in the account for at least five years.
• There are no required minimum
distributions as compared to other
retirement accounts.
It’s important to remember that the minor
must have earned income in order to be
eligible for a Roth IRA.
Here’s an example
using a Roth IRA:
At age 16, you deposit $5,500 for
year one, assuming earned income of
at least that amount. You make monthly
contributions of $458.33 earning 6%
annually, compounded monthly. Do
this for 44 years and at age 60, your
grandchild now has an account valued
at $1,261,013.57. The best part of a
Roth IRA is those monies are now available tax-free.
For the next birthday or holiday, as
you’re debating buying the latest video game or must-have shoes for your
adorable child or grandchild, consider investing those dollars for their
benefit instead and watching that gift
multiply over time. You may not be
able to buy love, but the recipients of
your generosity will most certainly remember you every time they see their
statement balance.
What a wonderful gift that leaves a
lasting impact and significant financial legacy.
As always, seek advice from your
tax advisor to ensure you understand
implications of your choice and personal situation.

At Portfolio Solutions®, we design, implement, and maintain dedicated portfolios using low-cost, passive
investing strategies so our clients keep more of what the global markets offer.
We would rather see investors earn more by controlling their investment costs
than by taking unneeded, additional risk in their portfolios.
DALLAS COUNTY Living Well Magazine | MAY/JUNE 2016

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