- April 10, 2024
- Posted by: legaleseblogger
- Category: Related News
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### Considerations for lending money to your younger sibling for a Roth IRA contribution
My younger sibling works part-time during college and earned a little less than the IRA contribution limit in 2023. As for me, I am a year and a half into my career and have saved my income quite rigorously so far. I currently have about $30k in a High Yield Savings Account (HYSA) and also contribute to my own Roth IRA, maxing it out each year. Moreover, I plan to continue living at home for the foreseeable future, which means I don’t anticipate any significant increase in expenses.
### Exploring the option of helping your younger sibling with their retirement savings through a Roth IRA contribution
Considering the fact that I missed out on the opportunity to start a Roth IRA earlier in my own life, I am contemplating lending some money to my younger sibling so they can contribute to their own Roth IRA while continuing to work during college. This is in an effort to help them get a head start on their retirement savings. The proposed arrangement would involve setting up a mutually agreeable payment plan for my sibling to repay the borrowed funds once they enter the workforce post-college.
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The only reason to do this is if you expect your sibling to be unable to save for themself. Which, to be fair, is most Americans. But they should be able to get out of college, start their own IRA in their mid 20’s, and those contributions will grow exponentially.
If you don’t expect them to save, well, even a few thousand now isn’t going to last them long in retirement.
Lending money to friends and family can go south pretty fast. Not saying it will but keep that in mind.
if you are OK with never seeing that money again, then sure
but don’t destroy your family relationship trying to collect the payments, if collecting the payments is important to you
No. Educate her on being responsible with money instead.
Do you get your sibling a birthday/holiday gifts? If so, I worked out an agreement with mine that you could use. I told them I’d match whatever they contributed to a Roth IRA up to a certain dollar amount each year.
Man I’d be so proud of my kids if they were considering this.
As someone older than you, my advice is that if you want to help, don’t ask for repayment. Either give your sibling the cash no strings attached to help them, or don’t give any at all. It’s never fun having a loan from a relative hang over your head and it can hurt relationships.
A decent method to assist kids to start retirement early is to set up a matching system. Maybe match dollar for dollar whatever they contribute. But don’t treat it as a loan. That needs to be a gift. If someone offered to loan me money to invest in retirement i think id just laugh at the ridiculousness of the offer
That’s a personal decision. For your finances the optimal strategy is to keep your money. For theirs it is to give them money to contribute.
As long as what they (you) contribute is more than their earned income and within the limits, it should be ok. I’m helping my own child with this even if she is working because her salary is really insufficient to cover the max contribution
Do it only if you gift the money to them. I’m assuming they don’t have much money to contribute, but they need to do something. Offer them to double or triple whatever they will contribute. It probably won’t be much.
But don’t do it expecting them to pay you back. That won’t end well.
As long as you treat that “loan” as a gift, sure, go ahead.
I would not make a college student working part time take a loan to contribute to their retirement. Let them finish college.
I wouldn’t do it. Your own personal example is proof that IRA/401k savings at ages less than 22 are not required in order to achieve a reasonable financial position early in life. The main prerequisite is instead expense control. You are sending the wrong message at a critical point in your sibling’s life. Right now, he/she is probably absorbing a LOT of practical realities about money. Lessons which have the potential to put him/her in the right state of mind for the rest of their life. You throwing money in a Roth and then having the market enter a raging bull market while probably your intended best case scenario, may in fact be psychologically the worst case event for your sibling’s development of a sound financial state of mind.