I'vebeen collecting anecdotal stories from advisers about when they'vefound their clients most receptive to the idea of a Child IRA. Hereare a few. (Photo: Shutterstock)

The phone just rang. It was from a name I didn't immediatelyrecognize. Turns out it was someone who attended one of thepresentations I did during the book tour last spring for FromCradle to Retirement.

The talk explained how the book offers both a theoretical aswell as a practical approach to setting up a Child IRA.

Though written for the mass-market audience, I've always feltclever financial professionals could see how the ChildIRA could enhance their business.

The call was from one of those clever financial professionals.It wasn't the first, though, and frankly, I'm surprised therehaven't been more.

The idea of the Child IRA has immediate appeal to nearly everyparent, grandparent, aunt, uncle, and neighbor I've had thepleasure to meet on my book tour. It answers the question theydon't want to admit they're thinking about (see “The Fiduciary Parent: How to Best Protect YourChild From the Day When the Promise of Social Security FinallyFails,” FiduciaryNews.com, November 6, 2018). Smartadvisers know they're thinking about it and, when the opportunitypresents itself, they reveal this tactic to their clients.

This is the time of year when the opportunity presents itself.Many minds begin turning to year-end tax planning as we head intothe holiday season. Why? Because, for several popular tax-savingstrategies, the window closes at the stroke of midnight on December31^st.

I've been collecting anecdotal stories from advisers about whenthey've found their clients most receptive to the idea of a ChildIRA. I'll share a few of them with you here just in case you findyourself in a similar situation. To make it easier, I'll break itdown by broad categories.

Young adults/Recent college graduates: By thetime their kids are beyond college age, the parents ought to be ina more comfortable financial position. After all, they're notsupporting their kids anymore. But should they?

Adults in their 20s often find it difficult to save forretirement. All their earnings go for immediate expenses ofginormous college loans.

With their earnings, they're eligible to save for retirement.The reality, however, shows they don't have the cash flow to dothis. This is where parents can offer a boost, even if it's just asmall one. They should consider gifting money to their kids thatcould then be contributed to a retirement plan.

Every little bit helps. It's better to make small investmentsnow than be up a tree with older adult children who are miserablewhen they realize their retirement savings just isn't there.

Teenagers: This is the age when many childrendiscover the joy and heartbreak of earning their own paycheck(usually through a fast food or other retail establishment). Thejoy comes as they suddenly don't have to ask their parents formoney to buy their favorite things. The heartbreak comes when theyfind out they don't actually get a sizable portion of theirearnings.

Nope. Much to their chagrin, they have to give sometimes almosthalf to the government in the form of payroll taxes andwithholding. Sure, they can get some and maybe even most of it backin the form of refund, but the immediacy of the taxes can shockthem.

This is where the Child IRA really helps. It might even beeasier to convince kids of the advantages of the Child IRA sincethey'll see it as a way to get “their” money back from thegovernment.

Of course, some parents like to create a “401(k)-type” incentiveby matching their child's contribution. Whatever it takes to getthem to start, parents are in a great position to make surechildren make contributions consistent. Once this savings habittakes hold, the kids are more naturally inclined to continue savinginto adulthood.

Pre-teens: Babysitting, delivering newspapers,mowing lawns, these are a few of the traditional small-time jobskids do to earn bubble gum money. If they're dedicated, they'llhave much more to chew on.

Their earnings may still be well below the threshold forsignificant taxes. That doesn't mean there's no advantage toestablishing a Child IRA.

In this case, with no need for a tax deduction, a Roth IRA makesan ideal choice. Think about it. The kids pay virtually no taxes ontheir earnings. The Roth grows tax free. By the time they retire,they'll have a tidy little nest egg that came to them almosttax-free. What parent wouldn't want that for their child?

Special situation: Parents who own their ownbusiness: OK, this is where the accountant comes in. Mindyou, I'm not an accountant, so I can't give you the definitiveanswer on this, but at least I know the right questions to ask.

For parent who are the sole owners of their own business, hiringyour children may be a way to transfer wealth to the nextgeneration without paying any (of very little) tax. It all dependson the prevailing payroll tax laws and may differ from state tostate. That's why you need to talk to an accountant on this.

There's an added bonus here. As long as the job isn't dangerous,many states allow parents to hire minor children at ages well belowthe established child labor laws.

Remember, these-parent owned businesses need not be full-timeoperating in large office buildings (although it works best if theyare at least profitable). They can be seasonal, or side businessesrun out of the home. For many financial advisers, this “special”situation, rather than being rare, represents a significant numberof their clients.

Hopefully, these four examples match at least a few people youknow. So, the next time you run out of things to say (becauseyou've said everything you need to say) about what clients must dofor their own retirement, switch the topic to the “new” generation.I say “new” and not next, because this discussion will work withgrandparents as well as parents.

And remember, the clock is ticking.

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The Child IRA: From meltdownsto millions

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