The purpose of this report is to summarize the results of an analysis of gifting your child the 1417Power Program versus gifting an equivalent contribution to your child’s personal investment account.
This study will evaluate two programs:
Once a child’s interest income exceeds $2,100.00 the Federal Kiddie Tax (IRS Topic 553 - “Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax)”, the parents marginal tax rate is applicable to the amount in excess of $2,100.00. The “Kiddie” income tax due is based on your marginal tax rate (see table)
Family Income |
Marginal tax rate |
$74,900 to $151,200 |
25% |
$151,200 to $230,450 |
28% |
$230,450 to $411,500 |
33% |
$411,500, to $464,850 |
35% |
$464,850 + |
39.6% |
The exclusion amount and the marginal tax rates could change. The personal investment program can result in the student’s account having a significant value. This value must be reported on your FAFSA application. Having any savings decreases the student’s “need” which will decrease the amount awarded on a “need” based scholarship and grants, and can reduce or eliminate the student’s opportunity to apply for some merit based scholarship offerings. By law a Roth IRA account value is excluded for assets on the FAFSA application.
Analysis 1: Program starting at age 4. The cost and resulting Roth IRA value at retirement is based on the 1417Power prepayment discount only. The analysis is based on 3 consecutive years of 1417Power participation at the $600 level starting at age 14. Versus the equivalent monthly amount deposited to the child’s broker account.
Analysis 2: Program starting at age 14. The cost and resulting Roth IRA value at retirement is based on the 1417Power standard program with no discounts. The analysis is based on 3 consecutive years of 1417Power participation at the $600 level starting at age 14. Versus the equivalent monthly amount deposited to the child’s investment account.
The table below provides a summary of the cost and total tax exempt Roth IRA account value of the 1417Power Program versus an after tax value of the child’s savings for both programs.
Item |
1417Power Prepayment Program Starting At Age 4 |
Child Savings Starting At Age 4 |
|
1417Power Program Starting At Age 14 |
Child Savings Starting At Age 14 |
Cost |
$17,281 |
$17,281 |
|
$21,600 |
$21,600 |
Value of Roth IRA account at age 67* |
$3,079,000 to $4,072,000** |
$977,000 |
|
$3,079,000 to $4,072,000** |
$834,000 |
* Roth IRA value is based on a mathematical calculation using 11.5% annualized rate of return. 11.5% is the 50-year average S&P500 index annual rate of return, it is not a forecast or prediction. Past performance of any investment program is not a predictor of future performance.
** 1417Power offers referral and revenue share credits that increase the participants level and or duration up to a maximum of a 30% increase in participation. This results in approximately a 30% increase in the Roth IRA contribution amount.
Starting at age 4 the 1417Power Program versus a child’s investment program results in a 215 % to 317% larger tax exempt Roth IRA account value at age 67* versus the after tax value of the personal investment account.
Starting at age 14 the 1417Power Program versus a child’s investment program results in a 269 % to 388% larger tax exempt Roth IRA account value at age 67* versus the after tax value of the personal investment account.
In conclusion the analysis strongly recommends the 1417Power Program versus either of the investment account concepts because the 1417Power program has higher valuation. It is also worth noting the Roth IRA is exempt from estate tax and remains tax exempt forever, whereas the investment account may be subjected to estate tax.