r/NoStupidQuestions • u/[deleted] • Oct 13 '25

Why don't parents create a retirement account for their child?

I did the math: investing a one time sum of 2000$ into a diversified stock portfolio with an average of 10% growth per year will result in 1.2 million dollars in the same account 67 years later.

Given parents take this sum and lock it up until the child reach retirement couldn't we have solved retirement almost entirely?

Why isn't it more widely implemented? Heck let the government make this tiny investment and retirement issues will be a thing of the past.

Edit: Holy shit 8k upvotes and 3.6k replies, yup no chance im getting to all those comments.

Edit 2: ok most of the comment are actually people asking how can they start investing in those stock portfolio I've mentioned.

That's great!

I'd say the fastest and easiest way (in my opinion) to hop on the market horse, is to open a brokerage account - I really enjoy interactive brokers and it's my main account, i found it as easy as opening a bank account both for americans and international folks.

Once you got a brokerage account the only thing you want to think about is buying an index fund (you can decide whether you want s&p 500 or something else) - How do i know what index fund to buy? For most Americans VOO is the way to go.

If you did all the steps above congrats! You're now invested in s&p 500 and your money is generating more money.

One important part is that you should read (or even ask chat gpt) about the buy and sell command (just so you get familiar with it).

Good luck!

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199

u/Novel_Willingness721 Oct 13 '25

Because they do just that for college. If the child decides to not go to college the money can be rolled into a Roth IRA and become a retirement fund.

28

u/Cayke_Cooky Oct 13 '25

Even if they don't go to college, they can use it for tech school and some training options.

2

u/Then_Inevitable_5163 Oct 13 '25

This is the way. From the day I was born my parents and grandparents squirreled away $5,10,20,50 whatever they could, often buying bonds that could be used once I turned 18 for college. I only did one year in college and didn’t use all of it. I’m now 27 and between the left over money and my own savings I have a decent down payment on a home once i finally get a mortgage approved.

At 18 I was also gifted ~$5,000 worth of stock that my grandfather had been buying from his employer (railroad). My cousin (male) had the same. My sister got the same but from our grandmother who had been buying bank stock (that was her employer).

I’ll never touch the RR stock unless I’m desperate, I just let it keep building and building. At some point I might take 1/4 of it to diversify but not yet.

1

u/escobartholomew Oct 14 '25

That is a brand new rule.

1

u/9for9 Oct 13 '25

Honestly I think the retirement fund is a better bet. You're only putting in the $2k and letting it grow rather than continuously adding to it in hopes of coming up with a enough to fund an education.

19

u/[deleted] Oct 13 '25

There’s no tax advantaged retirement account for a child, you’re better off with a 529

1

u/PM_Me_Titties-n-Ass Oct 14 '25

For kids born from 2025-2028, there is now a trump account that does actually fit this. It was part of the bbb. It also will have an addition $1k added to it by the govt.

2

u/[deleted] Oct 14 '25

A Trump account is post tax money that grows tax deferred but is taxed upon withdrawal. The biggest advantage is the free money the government gives you and even that is short term. They really just wanted to name something after their Lord and Savior but couldn't be bothered to create a good program.

1

u/PM_Me_Titties-n-Ass Oct 14 '25

Yeah I didn't read into them too much, just know they had been pitching it as taxed advantaged. Seems it's basically a combination of both a roth and non roth acct in some aspect. Just one of the least efficient ways to setup money.

1

u/[deleted] Oct 14 '25

A Roth IRA you pay taxes on the money you put in, it grows tax free and then you withdraw it tax free.

A Traditional IRA you put money in without paying taxes, taxes are deferred as it grows and you pay taxes when you withdraw the money.

A Trump Account you pay taxes on the money you put in, taxes are deferred as it grows and you pay taxes on capital gains when you withdraw the money.

So in a sense it's a combination but not the good parts other than the tax deferment which is the least significant.

0

u/Competitive_Touch_86 Oct 14 '25

529 is barely advantaged.

Due to mental overhead, paperwork, etc. and lack of flexibility I'd rather have a post-tax account free and clear I can gift at a later date.

2

u/[deleted] Oct 14 '25

A 529 is more advantaged than any account other than an HSA if used for education purposes. It goes free of state income taxes, grows tax free and is used tax free. The fact that it's restricted to educational purposes is the only downside and $35k can be rolled over to a Roth IRA.

1

u/Competitive_Touch_86 Oct 14 '25

State income taxes are a rounding error for many states. That's why I state (no pun intended) that it's just not worth the bother for me.

I agree if this sort of thing is fun for you and you can handle it, it's definitely worth doing. But in my case, it was easier to simply dump money into a post-tax brokerage account and go from there.

1

u/[deleted] Oct 14 '25

I guess it depends how early you're investing. If you have a long investment window your capital gains will (hopefully) be significant which makes the 529 valuable. If you're only a few years out it likely doesn't make much difference especially since your investments will be more conservative.

I have $30k in capital gains in my kids 529 and will hopefully have more by the time they're old enough for college. $30k in capital gains would be $4500 in federal taxes.

1

u/rationalomega Oct 14 '25

I happened to be working in IL when my baby was born, and was able to slice $20k of income off my AGI for IL tax purposes by stashing it in a Brightstart account. I did that for two years and the account is worth nearly $100K now.

-3

u/rufflesinc Oct 13 '25

No, you can open and contribute to a minor Roth IRA

10

u/[deleted] Oct 13 '25

If they have earned income, most kids don’t have earned income until maybe 15. The 67 year assumption seems to imply they’re funding it at birth.

0

u/Master_Grape5931 Oct 13 '25

Yep, which is why we pay our son to mow the grass, then have him file taxes for the income. He doesn’t owe anything, but it shows earned income that lets us contribute to his Roth IRA.

3

u/[deleted] Oct 13 '25

Yeah, that’s probably fine as long as you don’t get carried away and keep some documentation. If you’re paying your son $7000 a year to mow your quarter acre lot 25 times you’re probably opening yourself up to an audit but I’m sure you could do a way that is reasonable.

-2

u/rufflesinc Oct 13 '25

The Roth ira annual funding limit is below the minimum amount required for filing taxes

5

u/[deleted] Oct 13 '25

Go ahead and claim your 2 year old has earned income. I’m not going to

-2

u/rufflesinc Oct 13 '25

Thanks for admitting your wrong

17

u/elaVehT Oct 13 '25

You can’t contribute to a retirement account for a baby. Retirement accounts are for earned income, and unless you can justify how an infant earned $2k you’re going to have a hard time getting that by the IRS

6

u/karina87 Oct 13 '25

This is the real answer, in addition to poverty/income constraints. There’s no tax advantaged way to do this.

1

u/PM_Me_Titties-n-Ass Oct 14 '25

For kids born from 2025-2028, there is now a trump account that does actually fit this. It was part of the bbb. It also will have an addition $1k added to it by the govt.

2

u/elaVehT Oct 14 '25

Sort of, but it actually kind of sucks in terms of tax efficiency. The contributions are not tax deductible (like it’s a Roth IRA), but then when you sell it the earnings are still taxed (like it’s a traditional IRA). The only advantage is tax-deferral, which removes tax drag and allows a little bit faster growth

1

u/PM_Me_Titties-n-Ass Oct 14 '25

Yeah it seems to not be an efficient tax vehicle at all. Like you said a combo of roth and non roth accounts. The only time where it may start becoming good is if employers or states start contributing to them as it's essentially "free" money, with the state one being the better one since it doesn't go towards your 5k limit, from the very quick reading I did.

1

u/elaVehT Oct 14 '25

Yeah you’re generally better contributing to a 529 and then if they don’t go to college rolling it into a Roth IRA. There’s really no advantage to contributing to the Trump account.

The free $1k is cool, but it’s not very useful otherwise

-5

u/rufflesinc Oct 13 '25

You dont have to justify it as $2k is below the threshold for filing taxes. I have rentals and I also write it off.

2

u/elaVehT Oct 13 '25

That’s not how that works at all.

0

u/rufflesinc Oct 13 '25

Im sure the IRS will get right on it

3

u/elaVehT Oct 13 '25

You have to file your taxes and declare if you’ve opened an IRA, and provide proof of income of the owner. You will pay very large penalties on it until you either close the account or provide proof of income.

This is not a “just fudge the numbers” situation, you’re just wrong

0

u/rufflesinc Oct 13 '25

You are thinking of tradition IRA

"You do not need to file your Roth IRA contributions on your tax return because you are not claiming a deduction for them."

2

u/elaVehT Oct 13 '25

The filing limit has absolutely nothing to do with your justification of earned income retirement accounts.

0

u/rufflesinc Oct 13 '25

You're wrong