Set Your Kids Up for Life & Get a Tax Break! Roth IRA Secrets for Entrepreneurs

0:00This is an iHeart Podcast. Guaranteed Human Black history lives in our stories our culture and the conversations we still have in today I didn't know This Black History Month the podcast I didn't know maybe you didn't either digs into the moments perspectives and experiences that don't always make the textbook Let me tell you about Garrett Morgan Bruh had to pretend he didn't even exist just to sell his own invention Listen to I didn't know maybe you didn't either from the Black Effect Podcast Network on the iHeartRadio app, Apple Podcasts, or simply wherever you get your podcasts.

0:411969, Malcolm and Martin are gone. America is in crisis. And at Morehouse College, the students make their move. These students, including a young Samuel L. Jackson, locked up the members of the Board of Trustees, including Martin Luther King Sr. It's the true story of protest and rebellion in Black American history that you'll never forget. I'm Hans Charles. I'm Menelik Lumumba. Listen to The A-Building on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. What is something you've had to unlearn about love? That it's earned. That I was unworthy of love. That it needs to be forever for it to count.

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3:42So now let's go to number two. We want to start with this, the Roth IRA. This is your whale basket. I want you to cook, and then I'm just going to chef up with you. So the Roth IRA is another one of these strategies that we talk about that can be beneficial not only for the adult but for the child. So there's a few types. there's the Roth IRA, and then we have... Rob Markman There's a traditional IRA. And then Roth IRA. Rob Markman So a traditional IRA is you put money into a retirement account and you get a tax deduction for the money that you put in, but it's taxable when you're in retirement.

4:21So IRA stands for individual retirement account. That's what it stands for. Rob Markman So people are familiar with 401k. That's what your job provides. And a 403b if you work in some other, same thing. Yeah. But if you want to do it for yourself as a self-employed person or just a regular employee, you can do an IRA. An IRA is an individual retirement account. So the regular individual retirement account is what we just described. And then there's a Roth. The Roth IRA, you're able to put money in for your retirement, but you don't get a tax deduction. But the benefit with the Roth IRA is that the money's tax-free when you take the money out.

4:59So one of the good things with being an entrepreneur is that you can employ your child. We talked about this before. Yep. But even if you don't employ your child, you can set up a rough IRA for your child as long as your child is working. So this year, how much money can you pay your child this year? I think we got up to$14 ,300. $14 ,300. And we get this question a lot. And yes, I'm glad that people are asking the question of like, the child has to be of working age. So if you have a two-year-old, that is not classified as a working age. I believe the working age is between 7 to 17. And they have to be doing something that's functional.

5:39We work in a platform that actually has function, right? So for my son, right, when we actually record, he'll come down, he'll set up, he'll sweep, he'll clean the area. That is an actual functional duty that he is doing to help the business. So if you don't have a functional activity or a purpose for it, then it makes it tougher. But it has to be between the ages of seven to 17. You can't have your three-year-old perform in a function. Or maybe you can. Maybe you got a super child. But that's the age range. So the benefit with paying your child is that it's a tax deduction for you as an entrepreneur for your company and it's tax-free income to your child up to that amount.

6:27So if you pay your child $10 ,000, right, instead of giving them allowance, right? Because now when you give somebody allowance, that's after tax money. You've already paid taxes on that money. So if you've given them allowance to buy sneakers or to, you know, do whatever, you don't get any benefit for that. But as an entrepreneur, if you can give them$10 ,000 or$5 ,000 or whatever you're giving them and it's salary, now you get a tax deduction, right? You save money on taxes and it's tax free. They don't have to pay taxes on that income. So that's beneficial for any entrepreneur. Now, where the raw fire rate thing comes into play is that you can contribute to a raw fire rate or IRA, but we'll talk about the raw fire rate for now, which you can contribute to a raw fire rate for your child that's working up to the amount that they're actually getting paid.

7:21So if they have a regular job, they work in CVS, and they got paid$5 ,000, then they can have a raw fire rate up to$5 ,000. If you pay them, if you are an entrepreneur and you pay them$5 ,000, then they can contribute up to$5 ,000, right? So the limit for this year is$7 ,000. That's the most, right? So, okay, this is beneficial for people to know and understand because once again, it's just relatively short periods of time that can lead to large monies over the course of time. So if you are an entrepreneur, right, and you have a business, and mind you, you can be an entrepreneur and still have a job also.

8:04But if you're an entrepreneur, you have a business, let's say that you paid your child$7 ,000, right, for the year. now you can that's a tax deduction you're going to save money seven thousand dollars on your taxes now you can take that seven thousand dollars and put it into a rough ira now the benefit with that is that now the money is actually invested you invested in the stock market so let's just use an example usually uh working age is around 12. so if we pick the ages from 12 to 17 to 17 will be probably the last year in high school and then you know after that point they're putting an adult 18 years old so you you you go from 12 to 17 which is six years right let's say that you put $7 ,000 in to a rough IRA every year for a child.

9:02Mind you, you're getting a tax deduction for this money anyway. You put$7 ,000 away every year for six years, right? And let's say you invested it in QQQ, right? Historically over the last 15, 20 years, I think it's averaged over 10%. So we can use 10 % as something that should possibly be a realistic number. and that might be conservative at this point so let's say you invested that money 10 a year untouched because the thing with the ira is that's for your retirement right so when they retire they'll have 3.5 million off so the benefit with that is that you already made your child a multi-millionaire in their retirement now to push back for someone will say, okay, well, the child has to wait until they're 60 years old to get it.

10:00Well, my question is, if somebody had a million dollars, 2 million or$3 million for you right now and said, and you're 40 and said, at 60, you will get this money. Would you be mad? And you did nothing for it. A couple of years of work when you was a child, would you be mad at your grandparent for doing that? Or would you look forward to that opportunity? And mind you, you can take money from a Royal Fire rate earlier than that. That's true. There's some penalties that you have to pay, but you don't have to wait till you're 60. You don't have to wait till you're 60. And again, this is a conservative number, right?

10:37So we're talking about 10%. There's years, obviously we saw over the past three where the QQQ was trashed. The technology sector has gone up 25%, right? It has gone up 26 % and then it's gone down to 12. If we just take those averages over the past five years, you're going you're talking about way more than 10 the one thing that we know about the stock market is that it is going to appreciate 82 of the time the s p has increased over the course of the market's history and so 10 is a conservative number so we're you're saying 60 but that number could hit 3 million by 50 right and so it's all about deferring the gratification right just knowing that it's there and letting it compound.

11:19It is the eighth wonder of the world for a reason. That money doesn't get touched, you'll be a millionaire. This is not something that's hypothetical. At that number, at a conservative 10%, that's what it's going to average. And it's one of these things that it's not even, it's just basic math, right? This is, that's, like, life insurance is the easiest way. But this is another damn near guaranteed way to make your child a multimillionaire. Now, once we get, we never said, when we said make your child a millionaire, we never said there was going to be a millionaire tomorrow. But once again, we talk about generational wealth.

11:57So the whole point of it is that the child should be equipped to be earning money, to be doing things as an adult, right? Everything that they're given is extra add-ons for them, right? So this isn't like the only thing that they should be relying on as a 25-year-old. But like I said, one of the biggest problems that we have in a society is retirement. And they're already talking about cutbacks on Social Security. So if you don't have to worry about retirement, how much more free? I know people that take jobs just for retirement benefits. You work a job for 30 years just because it has a good pension.

12:39People will retire and go back to get a part-time job because they need the insurance. Yeah, sure. And here's the thing, right? Like, yeah, 50 sounds, if you're sitting in your 20s and your 30s, like 60 sounds like a long way. Like, we just, I just turned 43 years ago. You just turned 40 a year ago. At that same rate, you're still at that 10%, right? Just from those five years from 12 to 17, that 10 % compounded turns to nearly$600 ,000 by 40. Yeah. Did you get a$600 ,000 check in 40? I might have missed it. No. Wasn't sitting there for you. So yeah,$531 ,000 by 40. So like I said, it's not like locked up in a trust.

13:18You can take money out of the IRA whenever you want. You'll pay an early penalty if you take it out before your retirement. That's important to notice. But if you need money, like let's say you've got a brilliant idea, you want to start a business, then you can take the money out. It's never been taxed before. so you pay taxes on it, you'll pay a penalty tax, but ideally it's better to wait because you'll pay no tax. And like I said, keep in mind that money at 63.5 million is tax free. So when you get your 401k, you're paying state and federal taxes on it. So your million dollars is really$600 ,000.

13:55This is$3.5 million tax free money. So, I mean, that's just, that's just period of time. You just, you paid$7 ,000 a year for six years. And that could be, that could be $2 ,000. Of course, it's going to be a lower, but you know, you could use the calculator to see, okay, if I put$1 ,000 in, if I put$2 ,000 in, if I put$1 ,500 in, right, what does that equal? But the bottom line is that relatively small amounts of money in a short, relatively short period of time equals huge amounts of money later on in life. An illegal alien from Guatemala charged with raping a child in Massachusetts. An MS-13 gang member from El Salvador accused of murdering a Texas man.

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15:15Do what's right. Leave now. Under President Trump, America's laws, border, and families will be protected. Sponsored by the United States Department of Homeland Security. Black history lives in our stories, our culture, and the conversations we still have in today. This Black History Month, the podcast I Didn't Know, Maybe You Didn't Either, digs into the moments, perspectives, and experiences that don't always make the textbook. Let me tell you about Garrett Morgan. Bruh had to pretend he didn't even exist just to sell his own invention. Listen to I Didn't Know, Maybe You Didn't Either, from the Black Effect Podcast Network on the iHeartRadio app, Apple Podcasts, or simply wherever you get your podcasts.

16:021969. Malcolm and Martin are gone. America is in crisis. And at Morehouse College, the students make their move. These students, including a young Samuel L. Jackson, locked up the members of the Board of Trustees, including Martin Luther King Sr. It's the true story of protest and rebellion in Black American history that you'll never forget. I'm Hans Charles. I'm Menelik Lumumba. Listen to The A Building on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. What is something you've had to unlearn about love? That it's earned. That I was unworthy of love. That it needs to be forever for it to count.

16:41February is the month of love. Whether you're in a relationship, casually dating, or proudly single, it's a great time to reflect on yourself and what you want. I'm Hope Woodard, host of the Boy Sober podcast, and each week we're looking at love from every angle. Listen to Boy Sober. That's B-O-Y-S-O-B-E-R. On the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. This is an iHeart podcast. Guaranteed human.