Roth IRA's

Roth IRA's - 2/26/08

INTRO: How would you like to turn your child or grandchild into a millionaire? With a pretty small investment, you can give your youngster a worry-free retirement.

1. HOW CAN WE TURN A CHILD OR GRANDCHILD INTO A MILLIONAIRE?

A. The starting point is a Roth IRA. Your youngster can contribute up to $4000 a year to a Roth IRA, if he or she is working and earning at least that much.

So let's say your grandchild is 16. Perhaps he's earning some money from a summer job. And you can pay the child for work done for you B cutting your lawn, shoveling your driveway, cleaning your house. If your child earns $4000, he can put that into a Roth IRA.

2. HOW DOES THAT MAKE THE GRANDCHILD INTO A MILLIONAIRE?

A. Let's say the grandchild puts $4000 into Roth IRA when he is 16, 17, 18, 19, 20, 21, and 22. That's seven years, for a total of $28,000. That's it. No further contributions.

The money in the Roth IRA is invested. If the investment gains 10% each year, the youngster would have more than $2 million in the fund by the time he reaches age 65.

3. IS A 10% INVESTMENT RETURN REASONABLE?

A. Of course, if you use the financial tips provided every week on G.O.

But seriously, even if you only made 8% per year, you'd have close to $1 million.

4. WHAT ABOUT TAXES?

A. This pot of money in the Roth IRA can be taken out completely tax free. That's the magic of a Roth IRA. And that's how the money grew so well B because it can be invested without any taxes coming out.

5. CAN WE START THIS STRATEGY WHEN OUR GRANDCHILD IS 5 YEARS OLD, TO BUILD EVEN MORE OF A POT OF GOLD?

A. 5 years old isn't realistic. Remember, your youngster has to be working and earning at least $4000 per year. A 5 year old can't work. But you may be able to start before age 16. I just picked that as an example. If the youngster is working at age 13 or 14 and earning money, you can start then.

CLOSE: You can use a Roth IRA to help your child or grandchild build a better retirement.