You should consider giving your child or grandchild a Roth IRA.  

In 2018, you can contribute up to $5,500 to a Roth IRA. The contribution cannot exceed the child’s earnings and if the child has no earnings, you should consider filing a Schedule C with their return and reporting and paying tax on an amount equal to their contribution up to the maximum. The $5,500 pay-in for your child or grandchild counts against your $15,000 gift tax exclusion ($30,000 if you are married).

Some of the advantages and disadvantages of the Roth IRA are…

• The earnings grow tax deferred and, when taken out at age 59 ½, the entire distribution is tax free.
• The original contributions are always tax free, even if you withdraw them before age 59 ½.
• The contributions to a Roth IRA are not tax deductible.

When your child grows up she can continue the contributions…

• When the child reaches age 50 she can contribute an additional $1,000 or $6,500.
• When your child reaches age 70 ½, she will not be required to make minimum distributions.
• If your child is single, the allowable contribution begins to phase out with adjusted gross income between $120,000 and $135,000… and if she’s married, the allowable contribution phases out between $189,000 and $199,000.
• She can make contributions after age 70 ½.
• She is not required to take distributions from her Roth IRA… ever.
• To avoid the 10 percent penalty and any income tax on the earnings, there must not be any distributions during the 5 year period beginning with the first tax year a contribution was made, except if made on or after attaining age 59 ½, the individual’s death or disability, or to pay for first-time home buyer expenses.

I don’t need to tell you that the IRA could grow for 45 to 50 years and when she reaches age 59 ½ she could make withdrawals tax free. You should probably talk to your financial advisor to get the advice you need to reach your goals. Call me if you need a recommendation.

That is all today.  I look forward to visiting with you next week.  Please don’t hesitate to reach out if you have a question—you can reach me at (713) 785-8939.