Home > Tax News & Info > Tax Planning at 16?

Tax Planning at 16?

If you have a child or grandchild that worked a summer job this year consider making a payment to a Roth IRA for them.  You are allowed to pay in to a Roth IRA for a child or grandchild to the lesser of $5,500 or the child's earnings.  A $5,500 contribution to a 16-year-old's Roth IRA that earns 7% interest a year will grow to $151,000 by age 65 and $212,000 by age 70.  The more years those contributions are made; the balance will be significantly larger.  For the parent or grandparent, this gift is non-taxable to the extent of the yearly $14,000 exclusion ($28,000 if your spouse concurs).  Start thinking ahead now, your child or grandchild will surely thank you for it later.

Just a reminder, if the student did not owe taxes last year and does not expect to owe any this year they can elect to claim an exemption from withholding by filing a W-4. If the child makes less than $6,200 and has less than $350 in unearned income they will be exempt from filing and should elect to have zero withholding.

Comments ( 0 )
  1. No comments yet.
Comments are currently closed.
Trackbacks & Pingbacks ( 0 )
  1. No trackbacks yet.
  2. Trackbacks are currently closed.