Retirement Security for Your Child

Retirement security for your children. That's a concept too far in the future for many parents to consider. Yet as you think about raising your children, grandchildren or any special child—putting them through college, helping them to buy a first home, or start a new business—planning for their retirement is the next logical step.

Ask yourself this:

Wouldn't it be nice if you could help your children have the financial freedom to live the lives they want years down the road?

If the answer is "yes," you should know that getting your children started on the road to financial security might be easier than you may think. All it takes is a small initial investment, time and --an individual retirement account.

An Investment in Your Child's Future

As long as your child has earned income from any kind of job (such as a paper route, babysitting, or part-time work after school), you can open a traditional or Roth IRA and contribute up to $2,000 (or 100% of their total earned income, whichever is less) on your child's behalf. And because an IRA is a tax-advantaged account, your gift may be able to grow even faster than if you invest through a comparable taxable investment.

Your child will have to document his or her income and will have to file an income tax return. Most children will not owe taxes on earnings because the standard deduction will most likely eliminate all taxable income on the return. Still, the paperwork may be worth it, especially when you consider that you may be able to help your child amass as much as $1 million or more by the time he or she retires with a relatively small initial investment. Consider this:

Let's say your 16-year old son has a summer job and earns $2,000. Because he has earned income, he is entitled to open an IRA. Suppose you decide to help your child fund his retirement. If you invested $2,000 on his behalf each year until your son turns 21 (for a total contribution of $12,000), your son would have more than $1,000,000 by the time he turns 65, assuming the money you contribute to his IRA earns a 10% annual return and dividends and capital gains are reinvested.

Making Time Work For You

By starting early and letting your money grow, your gift may go a long way toward helping your child achieve financial security in the future. What's more, because certain IRA distributions are taxed and penalized if taken before age 59 1/2, your child may be discouraged from the money before retirement. This will give your gift plenty of time to benefit from the power of tax-deferred compounding.

Which IRA is right for your child? Many people will find that a Roth IRA makes the most sense. While contributions to a Roth IRA are not tax deductible, your child's investment earnings are never taxed, even when the money is withdrawn after age 59 1/2. And your child can withdraw assets from a Roth IRA prior to age 59 1/2, with some restrictions, to purchase a first home or for certain educational expenses.

Northern Funds Makes It Easy to Invest

Northern Funds offers no-fee IRAs to help you get started. You can select from a full range of 100% no-load mutual funds and convenient services to make investing for your child's future as simple as possible. For more information about how you can help your child get an early start on the road to financial security, contact your Northern Funds Certified Representative. He or she will be glad to work with you and your tax adviser on how to take best advantage of today's IRA opportunities.

To invest in a No-Fee, No-Load Northern Funds IRA call the Northern Funds Center at 800/595-9111, go to our IRA information and applications, or send us an e-mail. We'll send you an IRA Investor Kit.