Parentswith working children have until April 15th to open up a Child IRAfor their kids. It doesn't matter how small that Child IRA is atthe beginning. (Photo: Shutterstock)

Tick, tock. Tick, tock… the seconds keep clicking away towardsApril 15th. And then,… and then it will too late.

Parents may not realize it, but they might be letting atremendous opportunity slip through their fingers – establishing aChild IRA for their children (see “The Fiduciary Parent – The Ultimate Plan SponsorShouldn't Overlook this Familiar Tool,” FiduciaryNews.com,February 26, 2019).

I'm in the middle of a national radio tour talking to audiencesall over the country about the benefits of establishing a ChildIRA. When I explain the simple math they're blown away.

By saving in a Child IRA as little as the equivalent of a weeklylatte from the moment a baby is born until its 19th birthday, thatchild will retire at age 70 with $2.25 million. That doesn'tinclude any additional retirement savings.

Here's a few interesting points about the Child IRA brought upby those radio hosts from coast-to-coast:

“The idea sounds too good to be true.” Yep,it's unbelievable, but not the way you expect. The numbers assumean 8% growth rate. That's actually 3% LESS than the actual historiclong-term return.

If you want something truly unbelievable, put in the realhistoric return rate (11%). That two-and-a-quarter million dollarsballoons to $14 million. Now that really sounds too goo to be true.But it isn't.

“If it's such a great idea, why isn't everyone puttingtheir kids' earnings into Child IRAs?” Excellent question.Why ISN'T everyone doing it? More important, who is doing it?

It turns out many (but not all) of the parents who haveestablished Child IRAs work in the financial services industry.These are the people most familiar with the benefits of the ChildIRA. And they're using them.

“I thought child labor laws prevented kids from workinguntil their teenagers.” Yes, but no. While it's true suchlaws exist, they don't apply to every situation. For example,there's no reason why children – no matter their age – can't selllemonade curbside in the local neighborhood. Younger children mowlawns, babysit, and perform any number of menial tasks for friends,neighbors, and family members.

These juvenile entrepreneurs earn spending cash that qualifiesfor a Child IRA contribution. But there's possibly an even biggerexception to federal child labor laws. Parents who own businessesaren't necessarily barred from hiring their pre-teen children.

“My kid only made a few hundred dollars. That's toolittle to start a Child IRA.” Sure seems so, doesn't it? Imean, most parents are putting thousands of dollars into their own401(k) plans. What's a few hundred bucks in the grand scheme ofthings?

Turns out to be a pretty big deal. A twelve-year-old who places$500 in a Child IRA will see those few hundred dollars grow to morethan $43,000. That still might not impress, but now imaginestringing together a bunch of $500 over several years. It's nothard to see that $43,000 begin to approach a million dollars. Nowthat's a scheme that's certainly grand.

“What if I don't start a Child IRA the first year mychild is born? Can I catch up for lost years?” Mostdefinitely yes. Our “one latte a week” assumption translates to$1,000 a year. The IRA contribution limit (beginning in 2019) is$6,000, so there's a lot of room to catch up.

In fact, a child can end with roughly the same amount ($2.5million) just by making the maximum contribution only in theirpre-college teenage years. That's six years from age 13 through age18 putting in $6,000 a year.

“The Child IRA really sounds great, but my kids alreadyspent all the money they earned.” Not to worry. Mom anddad (or the grandparents) can gift the amount needed to establish aChild IRA for up to the amount the child earned or $6,000 (whateveris less).

Parents with working children have until April 15th to open up aChild IRA for their kids. It doesn't matter how small that ChildIRA is at the beginning.

The power of compounding compels them.

READ MORE:

Get them addicted to saving —Carosa

This is like a turbo-charged Child IRA —Carosa

Solving the 'my retirement or my kids' education'dilemma — Carosa