Editor’s Note: TCJA tax reform increased the standard deductions which enhances this strategy. Click here for how.
If you hire your sons and/or daughters to work in your business, where can they invest their earnings to get maximum financial benefits for college?
The answer is either a Roth or a traditional IRA, depending on the earnings of the child.
IRAs are a college-funding treasure for the working child, for six reasons:
The child may withdraw Roth or traditional IRA funds without penalty to pay qualified higher education expenses such as tuition, fees, books, supplies, and room and board.
The IRA might be ignored in measuring parent and student resources for purposes of college financial aid.
Monies in the IRA grow tax deferred.
The IRA might eliminate some or all of the child’s existing investment income from the kiddie tax (child’s earnings taxed at the parents’ rates).
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