Beyond The Self-Directed IRA: Do You Have a Family IRA Strategy?

Under current law, any individual taxpayer who has earned income can contribute up to $5,500 to a traditional IRA, or if they meet certain income requirements, to a Roth IRA. Those ages 50 and older can contribute another $1000 per month to a Self-Directed IRA or conventionally-invested IRA or Roth IRA.

Being diligent about contributing every year, even without taking a lot of risk and earning relatively modest returns can result in a very tidy nest egg… if one starts from an early age! The tax advantages of IRAs are a risk-free form of leverage.*

So it makes sense to maximize the advantages of a Self-Directed IRA and conventionally invested IRAs by multiplying your allowable contributions – and the law allows you to do just that: Open a new IRA for everyone in the family.

Generally, to contribute to a Self-Directed IRA or any other kind of IRA, the investor has to have earned income. As long as they meet the income threshold, everyone in your family can contribute up to the amount of their reported earned income. But it’s usually not difficult to meet that hurdle so they can contribute, or you can contribute on their behalf.

The Spousal IRA

The spousal IRA is one of the exceptions to the general rule that contributions to IRAs must be from the taxpayer’s own income. Years ago, Congress recognized that non-working spouses needed retirement income, too – and allowed nonworking spouses to contribute money to their own IRAs – up to $5,500 under current law ($6,500 for those over age 50), even without earned income of their own. As long as the joint tax return they file with their spouse includes enough earned income, a married couple can contribute up to $11,000 per year, or $13,000 per year if both are over age 50, to IRAs.

So the real annual limit for most married couples with at least one working spouse is $11,000 per year plus over-50 catch-up contributions. At a minimum, most of our married clients should be considering at least this level of contributions to Self-Directed IRAs or other kinds of IRAs.

Kids IRAs

Family IRA eligibility doesn’t end with the spousal IRA: There’s no age limit on IRA eligibility. Investors can be any age – as long as they have earned income on their tax returns, they are eligible to contribute to an IRA.

This allows them to take advantage of any investors’ best friend: Time.

Consider: If your youngster contributes the maximum allowable $5,500 per year from the age of 25 to age 67, and earns an average of 5 percent per year, your youngster will have a nest egg worth $823,652.

But if they start at age 19, they will have $1,143,054. That head start they get by beginning to contribute as teenagers is eventually worth $319,402 when they get to retirement. That’s quite a difference that first job flipping burgers can make, if you educate your youngsters, and perhaps give them a little boost in the investment department.

You don’t have to wait until age 19 either. If kids have income from working on your farm, babysitting, delivering papers, mowing lawns, or helping out with the family business, you can pay them a salary or hourly wage – and they can contribute those amounts to IRAs. If your child has income from acting or modeling in baby food and diaper commercials, that money, too, is eligible for contribution to IRAs – and the extra 19 years of compounding can make a world of difference at retirement time.

It’s easy for you to control those assets, provided you act as a fiduciary and manage them for your child’s benefit, and not your own. Simply set up a trust under the Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA) depending on your state, and you can manage investments on your child’s behalf until he or she reaches the age of legal majority in your state.

Note: Roth IRAs tend to be more effective for younger investors and those in low tax brackets. Lean toward the Roth if you can.

It’s easy to pursue self-directed strategies with your own IRAs and conventional investment strategies with your childrens’ IRAs, as well. Although American IRA, LLC specializes in supporting Self-Directed IRA strategies, we’re happy to support your IRA administration for your whole family. Indeed, since children tend not to trade a lot, American IRA, LLC’s flat-rate fee schedule can be much more efficient for a child’s IRA than holding the assets with a conventional investment company that charges an ongoing percentage of assets.

For more information on combining your Self-Directed IRA strategy with family IRA strategy, call us today at 866-7500-IRA(472).

Or visit us on the Web at

We look forward to working with you.

*The underlying investments can have varying degrees of risk, but tax deferral or tax-free growth, in the case of Roth IRAs, does not add risk to the equation – it just adds to eventual after-tax returns in most cases.