Do you want to prepare your children for financial success – perhaps even millionaire status – by the time they retire? According to financial expert Suze Orman, you don’t need an inheritance or trust fund for this. No family fortune required. Instead, all you need is a Roth IRA, a little discipline, and a lot of patience.
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Orman, who never misses an opportunity to champion smart financial moves, doubles down on the idea that the Roth IRA isn’t just a retirement tool for adults — it’s a springboard for your children’s financial future. In a post on her website last year, she called it a “golden opportunity” that could be worth a million dollars by the time they are ready to retire.
The magic of a Roth IRA lies in compounding interest over a long time. Orman explains, “You have a golden opportunity to launch them for their first million dollars.” The concept sounds almost too good to be true, but when you break it down, it’s all about letting time work its magic.
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According to Orman, this is how it could play out in real terms. Let’s say a young person puts $2,500 a year into their Roth IRA for 50 years. Assuming an annual return of 7% (not too shabby), they could be looking at more than a million dollars – tax-free – when it’s time to retire. Even if they start small, contributing about $1,000 for five years and then increasing to $5,000 per year, the numbers are still impressive: They would make more than $1.8 million if they kept it up until retirement.
One of the biggest benefits of a Roth IRA, especially for young investors, is the tax-free growth. Once your child starts contributing, he or she won’t owe the IRS any taxes on future growth or withdrawals — as long as he or she doesn’t touch the money before age 59.5. That means when the pension comes, that million dollars? It’s all theirs, completely tax free.
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Of course, convincing teens to part with their money for something that won’t pay off for another fifty years can be a challenge. Orman proposes to tighten the deal a bit. Parents can consider a matching contribution to make it more attractive. “Maybe suggest that for every dollar they contribute, you also contribute $10,” she says. And for the visually motivated, calculators can show the potential growth, which she describes as “both educational and super motivating.”
