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Ask the Retirement Expert: I Have Some Extra Money and Want to Help My Child Save for Retirement. What Are My Options?

Angela DiCastri, MBA, CLU® •  August 26, 2016 | Home and Family, Your Finances, Ask the Expert

By Angela DiCastri, MBA, CLU®

Angela is the Director, Retirement Market, Planning and Sales. Under her leadership, the department is responsible for the growth and development of the retirement market, sales and adoption strategies, and the execution of plans that align with both the markets needs and the Company’s product development efforts.

Each week our Northwestern Mutual retirement experts answer your questions. This week’s question:

I have some extra money and want to help my child save for retirement. What are my options?

If your child is still young, we would typically suggest helping your child save for college prior to retirement. However, if you’re already saving enough for college and want to do more, you have several options.

1. Open an IRA for your child. You can open an IRA at any time for your children as long as they have earned income that is reported to the IRS. Typically this starts when they get their first job sometime in high school. However, if your children can report an income at a young age, they can contribute a portion of that money to an IRA. They can contribute up to $5,500 of their income in a given year. If they make less than that, they can contribute however much they make that year.

2. Permanent life insurance. You can buy life insurance for children soon after they are born. In addition to providing a death benefit for your children (which they are likely to want when they have a family in the future), permanent life insurance accumulates cash value, which grows tax deferred and can be accessed at anytime for things like paying for education, making a down payment on a home or even supplementing retirement income.

3. Non-qualified investments. This could be mutual funds, stocks, bonds—basically more traditional investments. While these investments don’t enjoy the same tax status as the other options, investing money early and letting it grow over a long period of time will likely mean your children will see substantial growth by the time they are ready to retire.

No matter how you help your children save for retirement, it’s important to remember that if you are giving money to them, there are limits on the amount you can give each year without having to file a gift tax return. In 2016 that limit is $14,000 per year ($28,000 if you’re married).

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