HOW TO MAKE YOUR TEEN A MILLIONAIRE Recommended by Paul Ferraresi

Washington – How To Make Your Teen A Millionaire This Summer

Published on July 31, 2017 04:29 PM; http://www.vosizneias.com

Washington – Gary Sidder set up Roth IRAs for his sons when they turned 13. Each year, the Littleton, Colorado, certified financial planner and his wife, Francie Steinzeig, a school psychologist, contributed an amount equal to whatever the two boys earned cutting lawns, shoveling snow and doing odd jobs. As the sons’ earnings increased, so did the parental contributions.

“Initially we started with $400, and now we do $5,500 for each,” the annual maximum allowable contribution, says Sidder, whose sons are 32 and 27. “Now that their accounts are worth more than $100,000 and $65,000, respectively, they do see the value of saving and starting early.”

Even if no further contributions are made, both sons could see their accounts top $1 million by retirement age, assuming conservative 7 percent average annual returns.

Financial planners know that Roth IRAs can set kids up for sound financial futures. Since children have decades ahead for money to compound, even relatively small contributions can grow large. The catches:

The kids must have earned income from real work. That includes reasonable wages or income from self-employment. The Roth contribution can’t be more than their total earnings for the year, up to $5,500.

Kids under 18 need a custodial Roth. Not all brokerages have attractive options for small accounts. Fidelity and Schwab, however, offer custodial retirement accounts with no opening or maintenance fees. Fidelity has no minimum, while Schwab requires at least $100 to open the account, and both offer commission-free trades on certain mutual funds and exchange-traded funds.

Why a Roth rather than a traditional IRA? Low-wage workers pay little if any income tax, so they don’t get much value from tax deductions, including deductible contributions to a traditional IRA. When a big upfront tax break isn’t available, it makes sense to contribute instead to a Roth. Contributions aren’t deductible, but withdrawals in retirement are tax-free.

Another important note: Retirement accounts aren’t included in federal financial aid formulas, so a child’s Roth won’t affect financial aid offers from most schools. Some private schools, however, do consider custodial Roths when calculating their offers, says college financing expert Lynn O’Shaughnessy, author of “The College Solution.” Also, withdrawals from Roths during college years would be considered income to the child and count heavily against her, O’Shaughnessy says.

HOW ROTH IRAS WORK
The ability to contribute to a Roth starts to phase out above certain modified adjusted gross income levels. For 2017, the phase-out begins at $118,000 for singles and $186,000 for married couples filing jointly.

That’s not an issue most kids have to worry about. Let’s say your daughter works 30 hours a week for the federal minimum wage of $7.25 per hour this summer and earns about $2,600 over 12 weeks.

Obviously, she won’t net $2,600 from her job. She’ll lose 7.65% to payroll taxes and want to spend some of the money she earns. But you can contribute $2,600 for her, or offer matching funds for whatever she contributes. If she continues those $2,600 contributions for the next 50 years, her Roth can grow to $1 million, assuming 7 percent average annual returns.

That far in the future, $1 million will be worth the equivalent of about $230,000 today, assuming 2.9 percent inflation. Once she’s in the working world full time, encourage her to contribute at least 15 percent of her income toward her retirement and keep doing so throughout her career.

You can talk about that with her as you’re setting up her Roth. Together you should also:

—Review her investment options. Fees can devastate small accounts and dramatically lower the amount she can accumulate over decades, so low-cost index funds or exchange-traded funds might be a good choice.

—Discuss the temptations for tapping the money. Technically, she can withdraw an amount equal to the contributions at any time without paying taxes or penalties. She also can withdraw up to $10,000 for a first-time home purchase, or money to pay college expenses, without taxes and penalties after the account has been open five years.

—Underline the payoff for leaving the money alone to grow. The best use of retirement money is for retirement, and it can grow to seven figures only if she keeps her mitts off it.

“Parents could use this to teach a valuable lesson in delaying gratification and building investments over time,” says John Gugle, a certified financial planner in Charlotte, North Carolina. “This is a marathon, not a sprint.”

A FATAL IRA ROLLOVER ERROR by Paul Ferraresi

Only one 60 day IRA- to- IRA rollover can be done per year by an individual, regardless of how many IRAs he or she holds.

In the past, the IRS believed the rule applied separately to each IRA, but that is no longer the case. The new IRS publications make it clear that the rule now applies in the aggregate to all IRAs.

The once per year IRA rollover rule also does not apply to rollovers from other types of plans to IRAs, to rollovers from IRAs back to plans or to Roth conversions.

Further, the rule does not apply to non-spouse IRA beneficiaries, because they can never do a 60 day rollover anyway. Non-spouse IRA beneficiaries can move inherited IRA funds only using direct transfers. A spouse can do a rollover, but after a spouse’s death, spousal rollovers should also be done as direct transfers.

INDIRECT ROLLOVERS

A 60 day rollover means that the funds were withdrawn by the IRA owner via a check made out to the owner personally. By contrast, a direct transfer involves a trustee-to-trustee movement, in which the money moves directly from one IRA to another without anyone touching the money in between.

IRS Announcement 2014-32 makes it clear that a check made out to the receiving IRA will qualify as direct transfer and is not subject to the once-per-years IRA rollover rule. But a check made out to the IRA owner will not qualify for this exception because he or she can cash this check.

The rule now states that only one IRA-to-IRA rollover can be done per year from all IRAs held by an individual including SEPs, Simple IRAs and Roth IRAs. Note that one year means 365 days, not a calendar year.

If one does make another transfer, that will be an ineligible rollover and taxable to the extent of pretax funds withdrawn.

The transfer will also be subject to 10% early distribution penalty if one is under age 59 ½, and no exception to the 10% penalty applies here.

The action could also be subject to a 6% excess IRA contribution penalty if the ineligible rollover is not removed in a timely manner.

All of these IRA problems can be avoided by using only direct transfers. Direct transfers are not subject to this rule. An unlimited number of direct IRA transfers can be done.

IRA TROUBLE by Paul Ferraresi

What you think should happen to an IRA distribution and the actual outcome is two different things.

This great article (see link below) from the April 17, 2017 issue of https://www.financial-planning.com shows the tax horror stories that can develop.

The Lesson: Get competent advice from your advisor before doing anything with your IRA.

https://www.financial-planning.com/news/when-an-inherited-ira-becomes-a-tax-nightmare

HOW TO AVOID EXTRA TAXES WHEN YOU AVOID MARRIAGE by Paul Ferraresi

Even though same-sex couples can marry, they choose not to marry, as may opposite-sex couples.

You may decide to stay unmarried to avoid income tax burdens, or liability for back taxes and penalties on one partner.

A couple of key items when figuring income taxes:

• Married couples filing jointly can use capital losses to offset ordinary income only up to $3,000, or, $1,500 each if they file separately.

• An unmarried couple each filing separately can each use $3,000 offset or a total of $6,000.

• Unmarried couples may also be able to pay lower combined income taxes by having one partner file as head of household and the other file as unmarried taxpayer.

A few tax paying tips. It may not be romantic, but, these are the facts.

GREAT WAYS TO SAVE MONEY – Recommended by Paul Ferraresi

I came across ways to save money.

Remember, if you do not physically take the savings and invest it, instead spending the savings, then, you didn’t actually “save” the money.

Today we examine 99 GREAT WAYS TO SAVE

http://www.aarp.org/money/budgeting-saving/info-2017/great-money-saving-tips.html