Many parents want to set their kids up for success and support them on their life journey. With the memory of establishing 529’s at the forefront, the thought of IRA’s and Roths can be overwhelming. Don’t get caught in the weeds.
Join Matt and I this week to learn how you can take the 5-minute approach to giving a small, but meaningful, boost to your kids. The bottom line is: don’t over-complicate the saving.
- Open an additional brokerage account wherever you do your investing.
- Name the account something flashy like “For the Kids” or “Kids’ Savings.”
- Auto-transfer $20/$50 (whatever amount you want) to the account monthly.
- Let it grow (next week I’ll tell you how to invest it).
This is a great way to give a little extra (if that’s your thing) toward college, a down payment on a house, backpacking in Europe… or something that will make a big difference to a young person.
The account is in your name so there are no additional tax ramifications or extra hoops to jump through (vs. setting up IRA’s in your child’s name). Keeping it simple makes it easy to give a potentially life changing gift to your kids in the future.
I know we've done five shows about Roth IRAs, I still have so many questions like what is a Roth IRA? Does it involve a guy named IRA? And should I have one for my kids? Because I care about them.Mike:
Wait, we're not doing another show on Roth IRA’s? Oh no!Matt:
Well, no, no, no, no. It's not something that’s boring. Hey, it's financial life planning, I'm Matt Robison. This is the Mike Morton podcast that I host cause it's his show because it's one of these recursive, algorithmic whatever things. And so no Mike that's not the headline that I wanted to lead with. The headline I wanted to lead with was like you have children and we spend a lot of time on this show and a lot of time in our lives worrying if we're gonna be able to pay for college for them if they are able to and choose to go to college. But there's all kinds of other stuff that boy, a little helping hand down the road would be so amazingly great.And I just, feel like we've touched on this in the past, like we've hinted at it. So I want to hit it full on cause I'll bet there are a lot of people like us who have this on their minds. Is there a way that I can give my kids a little bit of a running start with all the things that they're gonna need in the future?Mike:
Yeah, it's great, man, I'm so glad I'm here, I'm so glad you're hosting my show for me, it's tremendous. A check is in the mail!Matt:
This is why services exist. Like you get some of your people to take care of it. It's like Homer Simpson, can’t somebody else do it?Mike:
Yeah. And we have hit on this a lot and we're gonna continue to hit on it because honestly, Matt, I get this question a lot, right? And so this is great content for people out there, and I get this question all the time from my clients, from my friends, and it's not only, the retirement questions, I've got kids in college, saving for college, but is there anything else that I can do to help support my kids in their financial education. So we talk about that and we've had that on this show. But in particular, I hear a lot about Roth IRAs and Roth IRA for kids. Should I open up one for my kids? and the question leads to financially supporting your kids now and in the future. So a Roth IRA, as we know, is for retirement. And so if your kid's 10 years old, yes, you could do this kind of thing, you can start a Roth IRA for your kids, we've talked about that. And then they're gonna get it 50 years from now. It's going to grow and it's tremendous. So just a few dollars can make a big difference, but there's also some nuts and bolts. Should I really do that? How complicated is it? And so I've been getting that question, and so I thought we could address that. What can you actually do? What are some practical steps if you do, or you're fortunate enough to one, have kids, don't know if that's fortunate or not. Fortunate enough to have kids and fortunate enough that you're, you know, can pursue multiple goals at the same time. And that you want to support your kids financially, both for potential college education, but also in other ways.Matt:
And I maybe want to define the question just a little bit further, because I could almost feel just a hint in there of people thinking to themselves, wait a second, I have to take care of my kids for the first 18 years of their lives, then I gotta pay for their college. Now you're telling me I got to finance the rest of those. When do they start paying for me? And I, so I feel that I do, I think what we are, what we're kind of aiming at here is the idea that, look, I'm going through middle age right now and it is amazing how along the way there have been just these little bursts of financial wind in my sails that my parents and my grandparents have been able to provide for me, and I do not come from wealth. I'm very fortunate that I had grandparents who left a little something, and that gave me a critical bridge financially in college. And my mom has been able to help me a little bit here and there. I think that's what we're talking about is it's amazing how far those little nudges go. As I reflect on that now I do, that's the kind of the tenor of the question that's in my mind and that I think I'm picking up from your clients, which is we're not talking about setting up our kids to be like James Murdoch and be Nado Wells who actually, James Murdoch is a really nice guy. It’s his brother Lachlan who's, who's a dick. Actually James Murdoch, I went to high school with James Murdoch. He's yeah, he's amazingly unspoiled for the environment he came from. He's like a really nice, adjusted guy. Anyway, we're not talking about spoiling our kids by making them heiresses here, we're talking about how can we set things up so that when they need that extra boost down the road, it's there for them much in the same way, I think a lot of us are middle class-ish have managed to get those kinds of boosts in the past.Mike:
Yes, yeah, you can spoil your kids in many other ways. So we'll hopefully not do that. But that's exactly right. And one of these things you might have seen, and we've had this on the show quite a while ago, we could revisit it if you put in a few thousand dollars now, when your child's born, if you can put away $3,000 when they're born, it turns into $50 million when they retire. Okay, so wait, how does a few thousand dollars turn into billions of dollars. And so that's the concept here is we put away a few dollars ourselves, or maybe the parents or grandparents, like a few dollars here and there can make a really big difference down the road, like you said, maybe for college or make down payments for house or something like that.Matt:
Can we quantify that just a little bit here? Because you've done a really good show. You actually got a great host. Oh no, it was me. You’ve got a great host for this show where you talked about like the waterfall of if you've got some dollars, first you put it here and then second you put it here. Could you just help me understand what kinds of people are we talking about here? Do you have to be super wealthy and or have taken care of a long list of other things first before you consider this? Or is this the kind of thing where we're really talking about no. Like you're average middle class saver who's able to put away a little bit for retirement, a little bit for college. We're really talking about some small steps here that, that make a big difference. Does this apply to a wide swath of people or narrow?Mike:
Yeah, wide swath and small dollar amounts. So 20 bucks a month, 50 bucks a month, just little drops, and the reason I start there, Matt, is because to me, so much of life is about the small habits, getting a little momentum, right? And then feeling great about how great does it make you feel to put away 20 bucks for your kids. Well, First of all maybe that's not the right way of framing it, but getting started on a goal of yours. Hey, I want to financially support my kids for college, right? So many of that. So when we open that 529 account and we put away some money, it feels really good. All making progress towards my goal. If your goal is to run a marathon, you’ve got to start somewhere. Go out for a jog, around the block. We're starting to build some momentum. So that's what we're talking about here. Small habits, small changes, and feel really good when you're able to do, that 20 bucks, 50 bucks, whatever it is. So yeah, and in the context of the where to save, I'm not talking high level. Because yes, we need to save for retirement. Yes, if college is important to you, you need to be saving and have a plan for those big items. This is more like an everyday, hey, I could put away just a few dollars here and there for another goal that I have. And it's not necessarily in the context of those bigger things. It's very small amounts.Matt:
Okay, so this doesn't crowd out your old retirement and your 529’s for your kids college. And again, we're not talking about like setting them up to be Paris Hilton or anything, but maybe we could, before we get into the nuts and bolts, maybe we could talk a little bit more I kind of spit balled, like the kinds of things they might use this word. So just so people can see whether this applies to that. What kinds of things are we talking about here, where it's super useful to have a few bucks as you go through the life cycle.Mike:
Yep, a couple of things there that are super useful. One, you got young kids college savings, a little bit of boost for college, like you mentioned that I had so many people just had a few thousands of dollars for them when they went to college. And it makes a tremendous difference. Even five or ten thousand by the time you're in college as a 19 year old 20 year old can make a big difference in your life. We know about student debt problems and all that, So there's one.Matt:
Can I tell you a quick one, look, I got all the financial aid and all that stuff and there was not a lot of college saving that we did growing up. But two things happened. This happened to me twice when I was in college. Once I discovered that there was a little bit of money from my grandparents, not a lot, but it was just enough to cover my family's contribution to the first year of college. So what that meant was there was one year of college where in addition to loans and grants, and financial aid there was a family contribution. That piece was covered for one year. What did that mean? It meant that I didn't have to take that amount out in loans, and it meant that I was able to pay off my college loans much, much faster later. It was just, it was a helpful increment. Then again, it happened to me again. I got a scholarship out of the blue. I just, I got like a we barely had email in those days. I got a note from the college administrators, hey, you've gotten, there's this small amount from an alum, it was like $3,000. It was not the biggest amount, but it defrayed again, my family contribution. And if you think about that and the interest on top of the principle, that turned into, in my student loan that probably saved me, I don't know, six months, a year of college debt payback eventually. And it's just those little things. So anyway, that, so that's the college.Mike:
Yeah. And there's just those little things too that makes a tremendous difference to a young student. Okay, so yeah, college is one another is down payments for homes. If you can get started, right? And when your kid is going to be 27 years old and looking for that first home. Hey, here's an extra five or ten or twenty thousand, or whatever it is, man. What a difference that can make towards, affording that first starter home. And then obviously retirement is another one. Giving that boost, that leg up towards, you know your kids' eventual retirement 50 years down the road because again, small amounts now grow and compound so significantly over the decades that's another great place of putting away a few dollars today. That can make a tremendous difference.Matt:
And you know, I've heard some others I don't know if this kind of thing has come up among your clients, but of course there are also negative life circumstances. Sometimes you have unexpected medical bills and the ability to take care of that. Sometimes you just end up in a position where you're in a job you don't like and you've hit your quit criteria as Annie Duke, the author would say. And you want the ability to do that, but you're a little bit trapped like most of us are. It's you actually need the money. That's why we do the work. That's what the money's for. And having that cushion of, why don't you take three months and really get your next job move right there. There I've heard those kinds of circumstances many times among friends. And so, just having that buffer there, it does sound very attractive to me. Okay, so you've sold me on this idea, what do I do?Mike:
Yeah. Don't, first, don't give away, don't remodel your kids' room when they move out, cause they might be back there when they change jobs for that three months. They'll be living back with you. So there, there's one. So what do we actually do? So one of the things I really want to bring up today because I'm asked the question, should I open a Roth IRA for my kids? Cause we've talked about that on this show and I just mentioned, Roth is great cause it's tax free forever. And I just mentioned if you can leave the money for 50 years to your kid's retirement, it's gonna compound and grow. And so the recommendations like, that's great, but there's it's, there's some hoops to jump through and it might not be that big amounts of money. If you're like, I'm gonna save, fifty or a hundred dollars this year and remember that, you can open any individual retirement account, you can open them for minors, you open up them up for your kids. But it's limited by their earned income. So if your kid's 10 and they do some chores around the house, maybe they make a few hundred dollars in the year, and you're like, do I really want to open up a whole account custodial Roth IRA just for a hundred or two-hundred dollars? You definitely can. It's great. You can teach your kids all kinds of things. That's fantastic. For me personally, I've made the choice, eh, I don't wanna jump through all those hoops. It sounds like a big hassle. I already have so many other things in my life that are hassles. So I didn't wanna do that for my kids. So the other thing you can do so you can definitely do that, it's great. But what I've done and often recommend is, hey, just earmark an account. Have your own account. Super simple. You can, you know, at any brokerage or bank, just open up a new account, name it, kids account or whatever, and put 20 bucks a month, automatically. Auto transfer 20 bucks a month, 50 bucks a month, whatever you want to do from your regular everyday checking account into that account. Now you can put this at a brokerage like Fidelity or Vanguard or Schwab or whatever. And then set up the auto transfers and you can have it set up to Auto invest or just go in there every couple of months and reinvest it and then that money's earmarked in your mind. Mental accounting for kids, for eventual Roth IRAs or college or down payments or emergency funds, and you're adding to it and it's growing. So you've built that small habit, of saving for them and building that momentum and feeling really good about setting them up.Matt:
Let me once again, try to play the role of audience mind reader. It's like Carnac Are you old enough to remember Carnac? We're going to lose our younger demographic. Johnny Carson used to be what Jimmy Kimmel is today, right? He was a late night talk show host. He was actually the most famous of all of them. He used to do this routine where he would pretend to be a mind reader and he'd put on this like this mind reader outfit. And he'd hold an envelope up to his head and he'd try to divine what the answer was to whatever was inside the envelope. And he'd open the envelope like he would do, like he'd hold up the envelope and say, ‘SIS boom’. and then he'd open it up and it would say, what sound does an exploding sheep make? So I'm gonna do my Carnac for the audience, which is, Mike, you had me at, this all sounds like a pain in the ass. You had me at the idea of oh, open another account. It's got Roth, it's got Ira, that's two names. And if you're a Jewish dude like me, they're probably names of my uncles somewhere. Like I just…Mike:
Multiply by the number of kids you have times three kids.Matt:
Yes. This is it. It's back to, can't somebody else do it? I will say that I have good news and bad news in this regard, so you, that really resonated with me when you were like, yeah, you could just kinda take an account you've already got. That's a great idea. The other piece, again, good news, bad news here is that I've actually experimented with the Green Light app and there are many other kind of competing apps that are the same that help you manage kids' chores, kids' allowance, but this one, and I think many of them do, has the built in as part of your automatic transfer of funds to your kids for doing their allowance, you allocate a portion to charitable donations, which is great, and a portion to savings. And they're of course, all too happy to set you up with accounts in that regard. There are ways to integrate what you are doing into stuff you may already be doing. It sounds like, oh, this is a barrier here. I got to set new accounts. You might be surprised, like you were suggesting, you may already have the accounts in place or the mechanisms in place to do this. And you can do it in a kind of low barrier kind of way. Now, I said there was bad news. The bad news here is I went through all the hour long pain in the ass of setting up the app, getting the debit cards for my kids. This was six months ago. Mike. This was six months ago. The debit cards are sitting here. I could almost hold one up to the camera. Mike, it's in the envelope. Look, it's in the envelope. Because you know what it's, I'm holding it up to the camera for our audio listeners, because I got to the point, and I think a lot of people are gonna feel this, where it's like, Ugh, now I've got to open up. I'm gonna activate the debit card and then I've gotta go into the app and I've gotta do the… so I'm gonna get this done in the next couple weeks. I'm gonna get this done. But the point is, the barriers a little bit lower than I would've thought to get going on something like you're talking about.Mike:
That's exactly right, Matt, and that's why I wanted to bring this up for listeners yes, you can do the Roth IRA thing. There's articles, I've talked about it. It's fantastic. But it seems like a big pain in the butt. Okay. And when you got multiple kids times, however many kids you have. So simple solution. No more fertility!Matt:
Doesn't your answer mean the eventual extinction of the human race?Mike:
Yes. So super simple. You already have a brokerage account at Fidelity or Vanguard or Schwab, or whatever. Log in. This is a five minute exercise. Click open, new account. They've already got all your info, so it takes, they're like click, click, click. Of course we'll open a new account for you, new brokerage account. Great. Then name it, kids account. Perfect. Then go to transfer $20 a month, auto every month, click done. There you go. And then check back in a few months and invest it in something. , but there you go. So that's my new recommendation. I've been doing that for a while and been talking about it, that it's the simplest way to get started and if you have multiple kids, you can just have one account. Whatever, it's just one, you're just, you're starting to put money, saving for the future, and in the future you can decide, how to get more real about it. Now, I will say I will get more real about it in a few years when my kids have, I've decided, like when they have an actual job where they're making some significant money, maybe a couple thousand dollars, they've got a summer job, they're making a few thousand dollars. That to me, is a threshold that it's, opening that Roth IRA account for them putting in a couple thousand dollars, get it invested and start to grow tax free. That to me is like a good hurdle, cause then now we're talking more significant dollars.Matt:
Got it, that actually that makes a lot of sense to me. So let me just…Mike:
Wait, that’s funny. Wait, something I said makes sense, Matt?Matt:
No, no, no, no, no, no, I said a lot of sense. Most of the things you say make sense, but they don't quite hit that, that extra level. But let me just read that back to you for a second because in case people got on the idea of Roth IRA. This has got to be a Roth IRA thing. What you're really seeing is just do the simplest, most basic version, because even getting going on it, and even at small amounts, getting over that hurdle means that your next hurdle with this is that much easier. Then, you increase the amount from $20 a month to $40 a month. Or, at that point you, you take the plunge and you turn it into, so you're breaking this up into smaller steps. So for anyone who at the beginning of the show, gosh, we should have said this 20 minutes ago, for anyone at the beginning of the show who was a little bit, you know, like, uh, Roth you don't actually have to do that. All you have to really do here is the five minute version and then, you can put off like I've been doing with Green Light. This is not an advertisement. Green Light's a great app. I love it. They're not sponsoring us or anything, but yeah, I've got a few more steps to go, but even getting going is good.Mike:
Yeah no, that's exactly right Matt, exactly what you said. Because here's what's gonna happen. You're gonna do this, you're gonna spend the five minutes, you're gonna save 50 bucks a month, you know you won't even notice, it'll go in there. And a year from now, six months from now, you're up to a hundred bucks. That's what's gonna happen. And now you're starting to, compound and grow and invest. So that's exactly right. Let's start with the easy five minute step. Get going, feel great about it. And then we'll revisit it a few months down the line.Matt:
Yeah. For anyone who's ever had the experience of taking a pair of jeans out of the closet, and putting on the jeans, smoothing out your pocket and going home, and you find like a 20 in there. It's so great. That's essentially the feeling that you're trying to give to your kids is this idea of, you know what, there's just a little bit of we're not trying to snowplow everything for you. But there's just there's a little bit of we're going to make the travel a little bit easier. All right, Mike, any other closing thoughts?Mike:
No, no do that five minute task, and I'll preview one of our next episodes is going to be but Mike, what should I invest that 100 or 200 into? So we will talk about my recommended portfolio for young kids in one of our next episodes.Matt:
That sounds awesome. All right, Mike, thanks for joining me on your show. And I think next time we should also workshop the question. Can somebody else do it? Because I feel like the answer should be…Mike:
They can replace both of us. This would be great.Matt:
Are you listening chat GPT?Mike:
See you later. All right, man. Thanks. Thanks for joining us on financial planning for entrepreneurs. If you liked what you heard, please subscribe to and rate the podcast on Apple, iTunes, Google Play Spotify, or wherever you get your podcasts. You can connect with me at LinkedIn for Morton financial advice.com. I'd love to get your feedback. If you have a comment or question, please email me at financial planning . Until next time, thanks for tuning in. This recording is for informational purposes only and should not be considered for investment advice or opinions expressed as our of the date of recording. Such opinions are subject to change. We do not guarantee the accuracy or completeness of the data presented here.