The following articles and commentaries by Hannah McMunn and/or with coauthor C. Edward Wall are copywrited works of IRAKids.com. However, they may be reused freely for educational purposes and may even be reprinted in other print publications (e.g., credit union newsletters) to encourage kids to start Roth IRAs as soon as the kids have earned income. The articles may not be sold or included in a publication that is to be sold. The articles may not be loaded on other websites, but the following abstracts may be used and/or the articles may be summarized on other websites. In all cases, the authors and the IRAKids.com website must be credited with authorship, and links should be provided back to the IRAKids.com website -- for additional information on sRoth IRAs for kids. For other uses of these articles, please contact IRAKids.com.
Brief Articles and Commentaries
by Hannah McMunn
Commentary: Borrowing Your Financial Well-Being from My Generation, by Hannah McMunn (age 16), expresses the concerns of her generation with being left the burden of paying off our national debt – which financed the wellbeing of her parent’s and grandparent’s generations. She notes how higher taxes, fewer deductibles, “means testing” of Social Security benefits, and “two-tier” wage and benefit scales – as well as other factors -- will impose even greater hardships on her generation. She urges policy makers to come together politically in order to define and implement policies that will begin to reduce this growing burden on her generation.
Commentary: Wants vs. Needs – The Cornerstone of Financial Literacy, by Hannah McMunn (age 16), describes the peer and other social pressures which motivate kids to “want”. If kids are fortunate, all their needs are provided by their parents or guardians, leaving them the luxury to focus on wants. Even financial institutions lure kids to establish savings accounts by enticing them with wants. To distinguish between needs and wants, and to set the right priorities are cornerstones of financial literacy; and both parents/guardians and financial institutions need to help convey that education, because marketers certainly will not.
Article: Work at Finding Summer Work, by Hannah McMunn, provides advice to kids on finding summer jobs. Written when Hannah was 16, she describes to her peers a series of logical steps for developing a plan to find work, preparing a flyer for distribution to a defined list of contacts, and the benefits of delivering the flyer directly to individuals on that list rather than placing the flyer in their doors. She emphasizes that working to find summer jobs “teaches us kids about strategic planning, communications, advertising, marketing, and customer relations. These are skills that not only will help us find work this summer, but for a lifetime.”
Article: Roth IRAs for Kids: Why Kids Have Substantial Investing Advantages, by Hannah McMunn, describes six benefits kids have as investors. For the most part, their needs are paid for them by parents or guardians, freeing most of their earnings for investment purposes. Most kids will earn too little in a given year to have to pay income tax. Their investments have a much longer time to benefit from compound interest, a major key to financial wealth. Starting early, they will have a head start in financial literacy education, and establish early a life-long pattern of saving and investing. They can be more aggressive investors, because they have more time to recover from investment mistakes. And many financial institutions offer preferential benefits to kids under 19 years of age. Kids need to take advantages of these investing advantages.
Article: Roth IRAs for Kids: The Three Types of Income, by Hannah McMunn, describes the three kinds of income: earned (active) income, passive income, and portfolio income. She defines earned income and notes that only earned income can be used to open Roth IRAs. However once the funds are in the Roth, those funds will be invested in portfolio investments such as stocks, bonds, mutual funds, etc. and passive income investments such as limited partnerships. She explains that our earned income will cease someday, whether through retirement, illness, or loss of employment – at which point we will be dependent on income from the other two sources. For a financial head start in life, kids must begin a systematic program of converting earned income into portfolio and passive income.
General Articles on Roth IRAs for Kids
by Hannah McMunn and C. Edward Wall
Roth IRAs for Kids, Part 1: What They Are And How They Can Grow, by Hannah McMunn and C. Edward Wall, describes how Hannah at 12 years of age started her Roth IRA. She describes what Roth IRAs are and explains how compound interest can double a kid’s investment in them many times in future years. Roth IRAs and compound interest are keys to a kid’s future financial success and wellbeing.
Roth IRAs for Kids, Part 2: Why Kids of My Generation Need Roth IRAs, by Hannah McMunn and C. Edward Wall, describes the two types of IRAs (Individual Retirement Accounts): Traditional IRAs and Roth IRAs. Hannah (age 16) emphasizes that Roth IRAs are an important shield against future financial adversaries, such as loss of or changes to Social Security , discontinuation or reductions to employer matches to retirement plans, and increased taxes – if only through “bracket creep”. With Roth IRAs, an individual has a head start toward financial security regardless of what happens to Social Security and employer matches to retirement plans, and it doesn’t matter if taxes go up because income from our Roth IRAs is tax free.
Roth IRAs for Kids, Part 3: Roth IRA Guidelines and Opening an Account, by Hannah McMunn and C. Edward Wall, reviews the purpose and potential of Roth IRAs. Hannah (age 16) explains the need for earned “after-tax” income to open an account; the ability and limitations on withdrawing funds early from an account; the requirement that a kid’s Roth IRA be a “custodial” account; and the need to keep good records. She provides links to sources of further information on keeping financial records and paying taxes. She also briefly describes how she set up her own Roth IRA and notes that there are easier ways to establish them than by the method her grandfather chose for her.
Two additional general articles will be loaded soon.
Credit Union-Related Articles on Roth IRAs for Kids
by Hannah McMunn and C. Edward Wall
Roth IRAs for Kids: Starting Them at Credit Unions, by Hannah McMunn and C. Edward Wall, describes how Hannah at 12 years of age started her Roth IRA. She opened her Roth IRA at a discount brokerage firm which had a minimum account size of $500. She describes how self-employment taxes, which start at $400 of earned income, forced her to earn almost $600 to have enough “after-tax” money to open her account. She describes how it would be much easier to open a Roth IRA account at a credit union (or bank) that has a low minimum account requirement. Then money earned each year – for several years – can be invested in that account until it became large enough to transfer into a brokerage account – rather than start there, as she had done.
Two additional articles on Roth IRAs for kids and credit unions will be coming soon.