Want to set your kids up for financial success – maybe even millionaire status – by the time they retire? According to financial expert Suze Orman, you don't need an inheritance or trust fund to make that happen. No family fortune is required. Instead, you just need a Roth IRA, a little discipline and a lot of patience.
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Orman, never one to miss an opportunity to champion smart financial moves, is doubling down on the idea that the Roth IRA isn't just a retirement tool for grown-ups – it's a launchpad for your kids' financial future. In a post on her website last year, she called it a "golden opportunity" that could be worth a million bucks by the time they're ready to retire.
The magic of a Roth IRA lies in compound interest over a long time. Orman explains, "You have a golden opportunity to launch them to their first million dollars." The concept sounds almost too good to be true, but breaking it down is about letting time work its magic.
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According to Orman, here's how it can play out in real terms. Let's say a young person stashes away $2,500 a year into their Roth IRA for 50 years. Assuming an annual return of 7% (not too shabby), they'd be looking at more than a million dollars – tax-free – when it's time to retire. Even if they start small, contributing around $1,000 for five years and increasing to $5,000 a year afterward, the numbers are still impressive: they'd see over $1.8 million if they kept it up until retirement.
One of the biggest perks of a Roth IRA, especially for young investors, is the tax-free growth. Once your kid starts contributing, they won't owe the IRS any taxes on future growth or withdrawals – so long as they don't touch the money before age 59½. That means when retirement comes, that million dollars? It's all theirs, completely tax-free.
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Of course, convincing teenagers to part with their money for something that won't pay off for 50 years can certainly be a challenge. Orman suggests sweetening the deal a bit. Parents might consider a matching contribution to make it more enticing. "Maybe you propose that for every $1 they contribute, you'll contribute $10," she says. And for the visually motivated, calculators can show the potential growth, which she describes as "both educational and super motivating."
Parents can open custodial Roth IRAs for kids under 18 to get the ball rolling. And when it comes to investing, Orman's advice is to keep it straightforward: focus on stocks and think long-term. She suggests using "total stock market indexes, via either mutual funds or ETFs." Another option? Consider fractional shares of big-name companies your kids might know, like Apple or Tesla.
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Based on Orman's advice, starting a Roth IRA early could be one of the best financial gifts you can give your kids. It's a powerful way to help them start building wealth, one contribution at a time. You're setting them up not just for a rainy day but for a future they can look forward to.
If you're looking for a way to give your kids a financial head start, the Roth IRA might be the millionaire-maker you didn't know was hiding in plain sight. But before diving in, it's always a good idea to consult a financial advisor to ensure this strategy fits your family's unique financial picture. A pro can help you navigate any complexities, optimize contributions and ensure you maximize that "golden opportunity" for your kids' future.
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