The MSB Blog: Millionaire Kids!
Disclaimer: This blog is not meant to act as a substitute for professional advice. It is the opinions and point of view of the author and all readers are encouraged to seek professional advice before making any investments, implementing tax strategies or making any business decisions.
One really cool aspect of being a father and a small business owner in the United States is the ability to take advantage of a very cool IRS tax code that allows you to hire your own kids under the age of 21 to work for you part time. You can pay each kid up to $12,000 of tax free income per year! When I say Tax free, its tax free for the kids but a write off for YOU! I am in the 37% tax bracket so paying my two daughters allows me to write off whatever I pay them. So if I paid them $12,000 ea x 2 that would be $24,000 annually giving a tax savings of $8,800/year. There are several other benefits to this law aside from the tax write offs. One is the ability to help your kids develop a solid work ethic. My kids clean tubs, help me water the snakes, sweep, mop and build shipping boxes for me. As they get older I will give them more complex tasks. I see them developing an appreciation for being productive and helping out. This makes me proud and gives me confidence that they will grow to be productive adults.
Another HUGE benefit of doing this is you can start a retirement account for your kids!!! This is huge as most Americans are horrible about saving for retirement. According to an article by CNBC, half of adults between 18 and 34 are not saving for retirement at all, compared to 42% of adults aged 35 to 44, and 40% aged 45 to 64. By starting your kids young you are setting them up to achieve millionaire status and teaching the value of investing very early in life. Screw what the politicians are saying... this is how we can bridge the wealth gap in this country by starting with our kids. Don't rely on the public school system to educate your kids on personal finances. Teach your kids to work hard and invest a good portion of what they make to achieve financial freedom. Teach them the value of free enterprise and how to make money work for you instead of them working for it. Teach your kids how to achieve TRUE freedom and take advantage of all the opportunities available to them in the largest economy in the World.
As far as the retirement account goes, there are a few options. I prefer the Roth IRA for my kids. Allow me to explain why. Traditional IRAs allow you to deduct whatever you invest for the year thereby reducing your taxes. The Roth IRA is funded with post tax dollars and does not reduce your taxes. However, when you start to withdraw your funds from the Traditional IRA in retirement you have to pay taxes on that distribution. The Roth IRA on the other hand is allowed to grow and be distributed tax free in retirement. This is huge considering your kids could easily grow their portfolio considerably over time. Since the kids don't have to pay any taxes on their first $12,000 of income there's no point for them to open a traditional IRA. This is why I chose the Roth IRA. There are other retirement plans out there and you may find other options that are a better fit for your situation. Do your research and decide for yourself.
To understand the rules that govern this tax code, just google Pay Your Kids Tax Law. There are dozens of articles on the topic. Then talk to your CPA to verify if your current tax structure of your business allows it. This is huge gift you can give your kids and help to create a legacy that benefits your family long after you've passed on. Just when you thought your hobby couldn't get any better! #MillionaireSnakeBreeder #MillionaireKids