$5,000 a Year Turns Into $3.3 Million Tax-Free: The Custodial Roth Strategy Most Parents Don’t Know About Quick Read – $5,000 contributed annually from birth compounds to $3.3 million tax-free by age 60 using a custodial-to-Roth conversion strategy. – The IRS requires children’s…
th contributions to match real documented earned income, meaning chores don’t qualify but neighbor jobs and paid surveys do. – Mueller’s plan delays Roth conversions until after kiddie tax age, then spreads them across low-income years to minimize the tax hit. – On a recent episode of the Catching Up to FI podcast, financial planner Allen Mueller laid out one of the most underused legal tax shelters in the U.S. code. That includes a custodial Roth IRA seeded the moment a child has documented earned income
The math is what makes parents lean forward. $5,000 contributed every year from infancy, assuming a 7% annual return, turns into roughly $3.3 million in a Roth IRA at age 60. Every dollar of that growth is sheltered from federal income tax for life. The strategy hinges on a structural quirk of the tax code.
Minors cannot legally contribute to a Roth IRA without earned income. So Mueller’s plan uses a custodial brokerage account during the early years and then converts it into a window before the IRS would tax the gains heavily. How Mueller’s Custodial Roth Plan Works The blueprint, as Mueller described on episode 221 of Catching Up to FI, runs in three phases.