Category: Investments

It may seem premature to think about retirement for kids, though it’s a topic we do discuss with some regularity with clients, particularly when 529 planning is also a consideration. Funding a Roth IRA for minors can be an equally, if not sometimes a more compelling move for those with minor children.  However, it’s not for everyone. Below are some common questions clients ask about how Roth IRA’s for minors work and what’s entailed for opening such an account

Who opens the Roth IRA account for minors and are all children eligible for an account?

A parent is allowed to open a Roth IRA on behalf of a child only if that child has earned income. The Internal Revenue Service (IRS) defines earned income as any income received from a job or self-employment. It can include wages, salary, commissions and tips. For example, if your child works in the local supermarket part time throughout the year and receives a w-2 statement, then the child has earned income.  It’s important to note that any reportable income that’s from non-employment activities such as stock dividends, interest from an investment or bank account is not considered earned income.

Since the account is for the benefit of a minor child, the parent will be setting up a custodial account. MPPL Financial can work with you to facilitate opening such an account. 

If the parent opens the account, who is the actual account owner?

Custodial accounts, which are also used for savings allocated for a child’s education expenses, are controlled and managed by an adult., or the parent in the instance of a Roth IRA for minors. Once the child reaches adulthood (between 18 and 25 depending on the state of residence), the account is transferred to them.

What’s the maximum that can be contributed to a Roth IRA for a minor?

Minors who have a custodial IRA are limited to contributing the annual contribution limit or the total of their earned income for the year, whichever is less. The annual contribution limit is established by the IRS and adjusted regularly for inflation. The maximum contribution allowed must be the lesser of $6,500 for 2023 ($7,000 for 2024) or their total earned income for the year. It’s likely that the lesser-amount restriction is applicable for most children. For example, if your child earns $3,500 in one year from working at the local golf course or babysitting, then the most that they could contribute to a custodial Roth IRA is $3,500.

Can parents fund the account on behalf of the child?

Parents (or grandparents) can only fund the account to help a child reach their earned income limit for a Roth IRA contribution. Such contributions need to be factored in their overall annual gifting limit allowed by the IRS. We have clients who have offered a match with their kids/grandkids to get them started saving.  For instance, if child or grandchild earns $2,000 and contributes $1,000 to the Roth IRA, the client will match that $1,000, subject to the child or grandchild’s earned income, of course.

What are the advantages of opening a Roth IRA for a child?

If your child is already earning money, there are some good reasons to consider opening an IRA for the child.   For starters, time is on their side when it comes to saving. Time offers the benefit of allowing the money to grow tax free. What’s more, by adding money to a Roth IRA, instead of a traditional IRA, the child gets the benefit of tax-free distributions later in life when they are retired.

Roth IRAs also offer flexibility since original contributions can be withdrawn without triggering a tax penalty. Funds withdrawn from original contributions can be used for any purpose. For example, your teenager might seek to withdraw $6,000 from their Roth IRA towards a purchase of a car provided this amount was from original contributions. Further, once the account has been open for at least five years, your child can take out up to $10,000—without penalty and tax free—toward the purchase of a first home.

If you have a minor child that also has earned income, we encourage you to reach out to your financial advisor at MPPL Financial to discuss whether opening a Roth IRA for them is appropriate for your situation.

MPPL Financial has offices in Wausau, WI, Duluth and Grand Rapids, MN, and Crystal Lake, IL. While we’re based in the Midwest, we work with clients across the entire U.S.

Investment Advisory Services offered through Midwest Professional Planners, Ltd. (“MPPL”), 2610 Stewart Ave., Ste. 100, Wausau, WI 54401, 1-800-236-6775, an SEC-registered investment advisor. Certain representatives of MPPL are also registered representatives of, and offer securities products involving commission or transaction-based fees through APW Capital, Inc., 100 Enterprise Drive, Suite 504, Rockaway, NJ 07866, 1-800-637-3211. Member FINRA/SIPC/MSRB. MPPL is independent of APW Capital, Inc. Registration with the SEC or State Regulatory Authority does not imply a certain level of skill or expertise.

For many business owners, the sale of their company is the largest financial transaction of their lives, and critical to one’s preservation and creation of wealth. If you’re a business owner contemplating a sale of your firm or transfer to children in the next three to five years, then it’s important to thoughtfully assemble a multi-disciplined team to help plan, structure, and execute the transaction.

If the right team is not in place and well-coordinated, you run the risk of 1) the purchase price not maximizing the full the value of the entity that you have built over the years and 2) paying higher taxes than necessary because of an inadequate deal structure. There’s also a good chance of missing out of critical personal financial planning opportunities as it relates to preserving your wealth, enjoying the lifestyle you envision for yourself, as well as tax, estate, and legacy priorities.

Who to Include on Your Team to Sell Your Business

Each of team members described below bring unique skills to the table that can help empower you before, during, and after the sale.

A Trusted Financial Advisor: It is critical to work with a financial advisor who possesses a deep expertise in financial planning as well as experience in working with business owners like you. The best time to engage with a financial advisor is well before you set out to determine the value of your business and negotiate a deal with the potential buyer. A trusted financial advisor can help you quantify what your income needs will be after the sale as well as the best ways to fund future personal goals.  This information is critical to ensure you can continue your lifestyle after sale and should be completed before you begin the negotiation process of any sale of your business.

During the sales process, an experienced financial advisor will also help you understand the financial tradeoffs between various alternative values of your business so that you can have more constructive conversations with your tax and legal counsel. If this is the first time selling a business, an experienced financial advisor can also act as a coach and sounding board throughout the process.

One often overlooked role of the financial advisor in for this individual to act as the quarterback for all of the other advisors on your team. The advisor can play point and help ensure all parties understand the financial implications of each step of the sales process. At MPPL Financial, we work with many business owners and have guided a number of them through this process. After the sale, the financial advisor will develop and implement an investment strategy for investing the net proceeds from the sale in a manner that aligns with your goals, values, and priorities.

M&A expert: This professional is often a business valuation professional who possesses a strong accounting background and advanced credentials in business valuation.  The types of activities this person will typically perform include:

• Conducting a valuation of your business, which is critical for determining what price you accept for the business. It also helps ensure that that the valuation used for tax purposes will still stand up if the IRS comes calling.
• Creating the pitch book to present your firm top to potential buyers
• Vetting potential buyers and supporting the negotiate the deal
• Managing the due diligence process necessary to close the deal

M&A attorney: It’s important to have an attorney with extensive transaction experience. If you have a longstanding relationship with attorney who does not have extensive M&A experience, then seek out someone who does. The last thing you will want during this process is having an inexperienced M&A attorney go through the learning curve during one of the most important events in your life. An experienced M&A attorney will understand the sales process and proactively seek to protect your interests during this crucial period. You can expect an experienced transaction attorney to provide legal guidance throughout the entire sales process. This professional will also draw up all of the necessary contracts and documents to support the successful execution of the transaction

Tax accountant: Not all accountants are created equal and have extensive tax experience in the sale of a business. The deal you ultimately structure will likely have significant tax consequences, so understanding the tax ramifications of each deal structure is crucial. That’s why it’s imperative to work with a CPA with a history of supporting transactions like yours who can provide input during the process of building a sales strategy that is as tax advantageous as possible. Your tax accountant can also provide support for the development of a valuation of your business by providing necessary financial documents. This individual should also be engaged to answer any financial questions a potential buyer may have.

Finding and Assembling the Dream Team to Sell Your Business

Identifying, evaluating and selecting experts to help you sell your business takes time. That’s why it’s important to start as early as possible in the process of building the team. Referrals from lenders, other attorneys, your financial advisor, and successful business professionals who have gone through the process are a very good start for identifying the team. Interview everyone referred to you that you feel is under consideration for your team.  Before you start the search for the team, identify the qualities you are seeking for each team member. While no one is perfect, it’s critical to prioritize the skills and attributes that are essential for a successful transaction.

Pulling it All Together 

Selling a business that you likely spend significant time and energy building is a monumental life event. As such, early planning and assembling the right team of experts can make all the difference in the outcome of the transaction and the type of life you live after the sale.

If you’re contemplating selling your business, we encourage you to reach out to us at MPPL Financial for a complimentary consultation of how to get started in the process and assemble the right team of experts to sell your business.

MPPL Financial has offices in Wausau, WI, Duluth and Grand Rapids, MN, and Crystal Lake, IL. While we’re based in the Midwest, we work with clients across the entire U.S.

Investment Advisory Services offered through Midwest Professional Planners, Ltd. (“MPPL”), 2610 Stewart Ave., Ste. 100, Wausau, WI 54401, 1-800-236-6775, an SEC-registered investment advisor. Certain representatives of MPPL are also registered representatives of and offer securities products involving commission or transaction-based fees through APW Capital, Inc., 100 Enterprise Drive, Suite 504, Rockaway, NJ 07866, 1-800-637-3211. Member FINRA/SIPC/MSRB. MPPL is independent of APW Capital, Inc. Registration with the SEC or State Regulatory Authority does not imply a certain level of skill or expertise.

At MPPL Financial, we help clients during the divorce process. With a Certified Divorce Financial Analyst® on our team, we witness firsthand how emotionally draining and mentally exhausting it is for most people. Many describe the divorce process as a time of feeling frozen, numb, or moving in slow motion.

If you’re contemplating a divorce, or in the midst of one, it is critical to fully understand your finances and assess them with a fine-tooth comb to ensure that your settlement agreement is fair and equitable. Even if you feel like you have full command of the situation, it’s easy to make money mistakes that can make the divorce more difficult than it needs to be.

Ways to Avoid Common Money Mistakes in Divorce

Here are the most frequent money mistakes we see in divorce and some suggested action steps you can take:

• Underestimating post-divorce expenses. You will be asked to submit a financial affidavit that reflects your expenses after the divorce. This will be used to determine if spousal support is necessary or not.

Thus, it’s imperative that your post-divorce financial affidavit is realistic and does not overlook any expenses. It’s critical to include everything, from your health care deductibles to anticipated home repair charges for the roof you might need to replace next year.

If you underestimate your expenses by $500–$1,000 per month, that amounts to $6,000–$12,000 per year. Think about it: where will you get that extra money once your divorce is final?

On the flip side, when you’re the primary breadwinner, this mistake could lead you to agree to pay maintenance you ultimately can’t afford.

Recommended action step: Consider retaining a Certified Divorce Financial Analyst (CDFA). A CDFA will help you craft your budget, develop your post-divorce financial affidavit, and review it closely to make sure that you don’t leave anything out and that there are no errors.

• Believing your attorney will handle everything. Many going through divorces fail to realize that theirattorneys are experts in the law, not in finance. Would you ask your doctor for advice about your car? No. So, why would you expect your attorney to be a financial expert? The attorney’s job is to have you complete a financial affidavit and take your word that what you submit is correct. A good attorney will glance over it to check for glaring errors, but that’s about it.

Pensions are among the most commonly misvalued assets we see at MPPL Financial. What’s more, sometimes, the pension is the most valuable asset in a marriage. Attorneys often use a present value statement from a pension plan to determine the value to include as marital property. This method does not take into account what portion of the pension is marital property and/or separate property.

Recommended action step: Retain a CDFA to value the pension properly and make sure that the final valuation considers any and all tax ramifications associated with it.

• Letting attorneys do the talking for you. The more decisions you and your spouse can work out by just communicating, the more money you’ll save. Sometimes couples can not bear to be in the same room with each other. We try to encourage these couples to consider the cost of relying solely on attorneys to communicate their goals. Why? If you have your attorney relay information to  spouse’s attorney, you can rack up costs upwards of $600 an hour. Such a communication process can significantly increase the overall cost of your divorce.

Recommended action step: Consider working with a CDFA® as a financial neutral to help you both work together to resolve the various aspects of your divorce and act as the source to provide agreed upon settlements to your attorney.

• Letting your emotions make your decisions. So many people going through divorce just want to “get it over with”. However, this isn’t the time to throw your hands up and agree to a settlement just to be done with it. Such thinking can leave you with not only higher future expenses, but a lot of regret in years to come. In our experience, a 50/50 split of assets is almost never a truly equitable settlement.

Recommended action step: Take a deep breath. Put the emotions aside so that you can consider the impact of these decisions over the long haul.  Making changes after the fact will not be easy and almost certainly costly.  Try to work with your spouse and your professionals to arrive on a settlement to provide the best possible outcome, now and in the future, for both of you. Be sure to hire the right professionals to be by your side and provide the help you will need throughout this volatile time in your life.

Pulling it all together

Divorce is a time of high emotion, combined with significant financial stakes. If you are contemplating, or going through the divorce process, we encourage you to contact us to discuss your situation in further detail. MPPL Financial has an experienced CDFA on our team to work closely with you during this highly sensitive time in your life.

MPPL Financial has offices in Wausau, WI, Duluth and Grand Rapids, MN, and Crystal Lake, IL. While we’re based in the Midwest, we work with clients across the entire U.S.

Investment Advisory Services offered through Midwest Professional Planners, Ltd. (“MPPL”), 2610 Stewart Ave., Ste. 100, Wausau, WI 54401, 1-800-236-6775, an SEC-registered investment advisor. Certain representatives of MPPL are also registered representatives of, and offer securities products involving commission or transaction-based fees through APW Capital, Inc., 100 Enterprise Drive, Suite 504, Rockaway, NJ 07866, 1-800-637-3211. Member FINRA/SIPC/MSRB. MPPL is independent of APW Capital, Inc. Registration with the SEC or State Regulatory Authority does not imply a certain level of skill or expertise.