Written by Today we’re diving deep into one of my favorite topics… building generational wealth with Roth IRAs. And if you’re a parent, grandparent, or someone who just wants to make a lasting impact, this one’s for you.
Planting the Seed: The Power of a Roth IRA
Imagine this: You take a tiny seed and plant it in the ground. That tiny seed is your Roth IRA. You water it, give it sunlight, nourish it, and over time, it grows into a massive money-making tree.
This tree gives you:
- Tax-free income
- No required minimum distributions
- Maximum flexibility in retirement
Anytime I talk about generational wealth, I start with your retirement. Because if you’re not financially set, your kids might end up supporting you. That’s what I call reverse generational wealth—and that’s not the goal.
Instead, let’s flip that. Get your retirement solid first. Then you can help your kids and grandkids with things like college, a home, or starting a business. A Roth IRA is one of the best tools to help make that happen.
You don’t need a six-figure salary to do this. All you need is a little bit of foresight, some strategy, and a commitment to consistency.
Why the Roth IRA is a Generational Wealth Powerhouse
Let’s talk about the four reasons why the Roth IRA is such a powerful tool for building generational wealth:
1. Tax-Free Growth and Withdrawals
In 2024 and 2025, you can contribute up to $7,000/year—or $8,000 if you’re 50+. Keep in mind that Roth and Traditional IRA limits are combined. So if you put $5,000 in a Roth, you can only put $2,000 in a Traditional IRA that year.
With a Roth IRA:
- You pay taxes now on your contributions
- Your investments grow tax-deferred
- Your withdrawals in retirement are tax-free
So let’s say you’re 30 and you invest $6,000 per year for 35 years. With average market returns, you could easily end up with a seven-figure retirement account—all tax-free.
That’s life-changing money, and it’s money that can serve you and your family.
This setup is ideal for those who expect higher taxes later—or anyone looking to leave a tax-free legacy for their family.
2. No Required Minimum Distributions (RMDs)
Traditional retirement accounts like a 401(k), 403(b), or Traditional IRA require you to start taking money out at age 73.
That’s because Uncle Sam hasn’t collected his taxes yet, and he’s not known for his patience. So, he created RMDs—Required Minimum Distributions—as a way to force your hand.
With a Roth IRA:
- There are no RMDs
- Your money keeps growing tax-free for as long as you like
You don’t have to pull that money out unless you want to. That gives you more control, more freedom, and more peace of mind.
3. Your Heirs Receive a Tax-Free Gift
Let’s talk legacy. When your kids inherit a Traditional IRA, they have to withdraw the full balance within 10 years—and pay taxes on it.
We call that a tax bomb.
If you’ve got a million-dollar IRA, and your child has to withdraw $100,000 each year for 10 years, that extra income might push them into a much higher tax bracket. That’s a tough situation.
With a Roth IRA:
- They still have 10 years to withdraw the money
- But those withdrawals are completely tax-free
So you’re giving them a gift that doesn’t shrink the moment they receive it.
That’s real legacy-building.
And it’s important to note that this applies to non-spousal heirs. If you leave your Roth to your spouse, the rules are even more favorable. But even for your kids or grandkids, it’s a huge advantage.
4. You Can Open a Roth IRA for Your Kids or Grandkids
Here’s a fun fact: There’s no minimum age to open a Roth IRA. The only requirement is earned income.
So if your child or grandchild has a job—maybe they bag groceries, babysit, or help out in your business—they can open and contribute to a Roth IRA.
If you own a business, you can even hire them to do age-appropriate work. The IRS allows it as long as it’s legitimate. No, they can’t be the CFO at age 8—but they can help clean up the office, file paperwork, or handle social media if it’s age-appropriate.
Once they earn income, here’s the power of starting young:
- Just $150/month for 40 years could turn into $1 million
- That’s with average market returns
- And it only takes about $80,000 of actual contributions
That’s the power of compounding. Like Einstein said, “Compound interest is the eighth wonder of the world. Those who understand it, earn it. Those who don’t, pay it.”
You’re not just investing money. You’re investing time.
But What About Penalties?
Let’s keep it real—Roth IRAs are designed for retirement. If you take money out before age 59½, you could face a 10% penalty.
There are exceptions (like using up to $10,000 for a first-time home or if you’re disabled), but the general rule is: Leave it alone unless you really need it.
This is why I don’t recommend putting all your money in Roth IRAs. You need flexibility. You want to be able to invest in a business, buy a property, or take care of unexpected life events without penalty.
So think of your Roth as one stream of income for later—not your only option.
5 Steps to Set Up a Roth IRA for Generational Wealth
Alright, let’s break this down into something actionable. Here are five simple steps:
- Open the Account – For yourself, your child, or grandchild.
- Fund It Each Year – Even small amounts ($100/month) add up fast.
- Invest the Money – Don’t let it sit in cash. Use index funds or a diversified strategy.
- Let It Grow – Stay consistent and avoid early withdrawals unless there’s a good reason.
- Create a Transfer Plan – Use estate planning tools like trusts or beneficiaries to pass it on the right way.
And don’t forget—this is about passing wisdom, not just money.
The Generational Wealth Trap—and How to Avoid It
Here’s a scary stat: 70% of generational wealth is lost by the second generation. And 90% is gone by the third.
Why?
- The first generation builds it
- The second protects it
- The third squanders it
We call this the generational wealth curse.
I believe in “Better Self, Better Wealth.” That means if you become the kind of person who creates wealth, you also become the kind of person who can keep it.
But if you just give someone money without the mindset, habits, and discipline to manage it—they’ll lose it. Lottery winners, pro athletes, even celebrities—many of them lose it all.
So what do you do? You teach. You share the stories. You pass down the principles, not just the portfolio.
Final Thoughts: Legacy Isn’t About Luck
You don’t have to be rich to build wealth.
You just have to be intentional and consistent.
If your child starts at 15, and invests for 30 years—they’re only 45 years old and financially free. They’ve got a million-dollar tax-free nest egg. And it all started because you had the vision to plant that seed.
As the proverb says: “You’re planting the tree today to provide shade tomorrow.”
Thanks for spending time with me today. I know you could be anywhere, and I don’t take that for granted.
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Until next time—stay safe and enjoy life!