Sir Isaac Newton’s First Law of Motion states that an obje at rest will remain at rest until an agent-of-change forces it to move.  Once set in motion, the obje will maintain the same speed and direion until something forces change again. 

Newton’s Law and Human Nature:  Newton’s Law applies to human as well and can be summed up with the following fa: We humans tend to procrastinate!  William James, the father of American psychology, illustrated his own Newtonian tendencies by sharing the following experience.  James was lying in bed on a cold winter morning in the late 1800’s.  His bed was warm but the room . . . freezing.  He lay there on his back, looking at the ceiling as his breath filled the air with crystalline plumes of vapor.  Comfort and content under layers of blankets, he shuddered at the thought of getting out of bed, and the pain and discomfort of walking barefoot across the frozen floor to rekindle the fire.  Minutes ticked away as James procrastinated – his mind counting reason after reason to remain warm and at rest. 

Then, suddenly, a greater discomfort struck him: a pang from his stomach.  James was very hungry!  He was then struck by a second, nearly instantaneous, realization.  The fire on the other side of the freezing floor couldn’t start itself.  Without a fire there could be no breakfast!  So, for James on that cold morning, hunger became the greater discomfort – that agent-of-change that forced him from his bed and onto the freezing floor. 

We can all relate to James’ experience and its ability to explain why it is so hard to change: to lose weight or to stop .  We, like objes at rest, remain at rest – creatures comfortably resigned to habit – until a greater force, such as ors’ orders, forces us to change our behavior. 

  James’ observation also sheds on an irksome financial mystery – why so many of us avoid saving for retirement until the shaw of middle age – and sheer panic – finally spur us to aion.  The consequence of this financial mystery is well cumented.  Those who wait must save tens-of thousands more to retire, and retire with less money, than if we had started saving earlier. 

  If you’re a grandparent, the Tax Code provides a solution that will remove this Newtonian-Savings dilemma from your grandchild’s future.  One solution is a Roth Individual Retirement Account (IRA).  A Roth IRA can be established for anyone, including children, who have “earned ” (from a job).  Under rules, qualifying individuals under age 50 can place up to $5,500 into a Roth each year.  Although no tax deduion is allowed for Roth contributions (which wouldn’t benefit most kids anyway), interest compounds tax free and, if not withdrawn until age 59 ½, can be removed completely tax free.  While your children struggle to save and pay for your grandchild’s college, consider giving your grandchild a gift that will help relieve a major future burden: using a ROTH to help save for retirement.  What impa could this have on your grandchild’s future?  Major.  Let’s consider two common scenarios. 

Jack the Normal Procrastinator:  Jack is a typical 35-year-old who sees a few grey hairs and suddenly realizes he is getting older.  Suddenly, Jack realizes he has not saved a single dime for retirement. Spurred onto aion by sheer panic, Jack becomes an obje in motion.  He budgets, scrimps, and struggles, and manages to put $417 into a Roth IRA each and every month ($5,000 per year) for the next 30 years.  In all, Jack places over $150,000 in his account.  If his Roth earns an average of 8% per year (compounded monthly), a large but fairly realistic assumption, Jack will have approximately $620,000 to retire on when he reaches age 65. 

Jill: Procrastinator with Awesome Grandparents: Jill is a typical American in her early twenties; thoughts of retirement are far, far away.  When Jill was young, her grandparents decided to set aside $50 each month for her future.  Then, when Jill started working part-time as a teenager, they established a Roth IRA in her name and, as she earned , began moving funds from their savings to her Roth account.  By the time Jill was 20 years old, her Roth IRA had a balance of $25,000, an amount that will continue to grow, tax free, until Jill is ready to retire. 

The Power of Early Savings: Because of time and the power of compounding interest, Jill faces a more se retirement than Jack, even if she es not save another dime for retirement.  If Jill’s Roth IRA earns the same average annual return as Jack’s, 8% (compounded monthly to compare to Jack’s monthly payment, resulting in an 8.3% effeive annual rate), the $25,000 seed planted by her grandparents will be over $900,000…. $250,000 more than scrimp-and-save Jack – on her 65th birthday! 

Recapping the Power of Compounding Interest:

For the price of a or a semester at many universities, Jill’s grandparents have used the Tax Code to give their child a gift of priceless value – a financially se and tax-free retirement. 

Please remember: This or any article es not constitute or replace the advice of a qualified professional.  If you would like assistance with any business or taxes issue, please feel free to call our office at (304) 267-2594.


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