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Investment Professionals

Children
& Investing
It’s never too soon to open an IRA

Assumes $2,000 annual investment at the beginning of each year, 11% compounding rate, hypothetical return.
Source: U.S. Global Research

Know a child between the ages of 10 and 18? Know a child – or anyone, for that matter – who would like to be a millionaire someday? As far-fetched as it seems, a child who opens an individual retirement account (IRA) at the tender age of 12 has a chance of becoming a millionaire by age 70 (see box).*

Child's current age		12
Child’s estimated retirement age:		70
Estimated annual rate of growth:		8%
Estimated annual contribution:		$2,000 x 7 years
Estimated total contribution:		$14,000
Estimated account value at age 70:		$1,054,363.92

Of course, as with any IRA, the child must have earned income to qualify. Income from baby-sitting, mowing yards or after-school part-time jobs can be used to open the account, as long as the income can be documented and has been reported.

Minors’ contribution limits and eligibility requirements are similar to those for adults. Contributions are limited to either $2,000 or 100 percent of earned income, whichever is less. One difference is the necessity to name a guardian for the child’s investments until the minor reaches the age of majority (in most states, either 18 or 21 years old).

Another tax consideration – selecting either a traditional or Roth IRA – will affect the distribution end more so than the contribution end of the investment. Because most children do not fall into an income bracket necessitating the payment of income taxes, the non-tax-deductible Roth IRA could be a wise option. By selecting the Roth option, the child’s IRA will grow and be distributed tax-free at retirement provided all conditions are met. There are even limited penalty-free withdrawals available, to be used for such one-time expenditures as higher education or the purchase of a first home.

Financial advisors suggest a number of tips for getting started on this "how-to-be-a-millionaire" quest.

First, get Junior started on saving as soon as he lands a part-time job. Consider saving at least half his earnings into an IRA. Or, offer to continue his allowance if he will save his entire earnings. Also let relatives know of Junior’s goal, so that they may be inclined to give monetary gifts, thereby allowing Junior to save all his documentable income.

You might make this a family affair, setting the example with regular powwows around the kitchen table to discuss investments, successes and not-so-successful strategies. Also, never underestimate the computer’s power to illustrate how investments may grow over time. You can work together to develop spreadsheets, pie charts and graphs with scenarios exploring different contributions, growth rates and retirement ages.

For more retirement planning information, go to www.usfunds.com and select the Tools button. The Regular Payments Calculator estimates a hypothetical IRA’s value at age 70.

To learn about our IRA products and funds,please call an investor representative at 1-800-US-FUNDS or visit www.usfunds.com to download an IRA application and a fund prospectus,including charges and ongoing expenses. Please read the prospectus carefully before investing or sending money.

*Assumes contribution made each year from age 12 to age 18. Hypothetical example assumes 8 percent annual growth,contributions made in lump sum at beginning of year, no withdrawals until retirement and interest compounds annually.