Bonus - College Savings and "401Kid" Plans.
Okay, so you agree this is a no brainer, and are ready to HireYourKid and save thousands of dollars in taxes every year. What is better than that? Well, what about a tax free education and retirement for your child. Here are a couple bonus concepts we here at HireYourKid really love.
College Savings - using the same assumptions, you are now paying your kid $6,000 a year to work the job you created. Instead of having that money go to movies and games, what if that was put into a 529 educational savings plan. 529 plans are great college savings tools where no tax is charged on the interest earned when used for education.
Lets say you started HireYourKid when your child was 8 and in the 3rd grade. His first job was sorting the mail and cleaning around the office. You continued the HireYourKid plan for 10 years until they went of to college. If that $6,000 per year went into a 529 plan that average 8% interest per year you would have $100,000 at the start of their freshman year. That is full tuition at most in-state public universities.
In that 10 year period, not only would you have saved over $20,000 in taxes from HireYourKid, but also saved $10,000 is taxes on the $40,000 dollars earned in your 529 investments. You have created a job, and funded a completely tax free college education for your kid. Wow!
Lets say you started HireYourKid when your child was 8 and in the 3rd grade. His first job was sorting the mail and cleaning around the office. You continued the HireYourKid plan for 10 years until they went of to college. If that $6,000 per year went into a 529 plan that average 8% interest per year you would have $100,000 at the start of their freshman year. That is full tuition at most in-state public universities.
In that 10 year period, not only would you have saved over $20,000 in taxes from HireYourKid, but also saved $10,000 is taxes on the $40,000 dollars earned in your 529 investments. You have created a job, and funded a completely tax free college education for your kid. Wow!
"401Kid" Plan- we call this idea 401Kid because this concept takes the job you created for your child and turns it into a stress free retirement for you kid. Because your kid now has "earned income" they are now eligible to make retirement plan contributions. Therefore, instead of investing in a 529 plan or paying for movie tickets, you open a Roth IRA for your child. Just like the 529 plan, their are no taxes on the gains within a Roth IRA when used for retirement (after age 59 1/2).
Once again, let's use our standard assumptions: 10 years of HireYourKid with wages of $6,000 per year for your child. But not instead of pulling the money out for college it stays in your child's Roth IRA until they are 59 1/2. So $6,000 per year for 10 years, for a total of $60,000 contributed, at 8% interest until your child (now adult) turns 59, would be ... over $2,300,000! That is right, you have turned that one created job into $2,300,000 and NOT ONE CENT was ever taxed! And your child gets to retire before their 60s. If they wait till 65 to retire their Roth IRA will grow to over $3,700,000! Double Wow!!!
Once again, let's use our standard assumptions: 10 years of HireYourKid with wages of $6,000 per year for your child. But not instead of pulling the money out for college it stays in your child's Roth IRA until they are 59 1/2. So $6,000 per year for 10 years, for a total of $60,000 contributed, at 8% interest until your child (now adult) turns 59, would be ... over $2,300,000! That is right, you have turned that one created job into $2,300,000 and NOT ONE CENT was ever taxed! And your child gets to retire before their 60s. If they wait till 65 to retire their Roth IRA will grow to over $3,700,000! Double Wow!!!