Money Rehab with Nicole Lapin - Kylie Jenner Created $14 Million Tax-Free Dollars For Her Daughter With This Loophole— and You Can Too!

Episode Date: July 19, 2024

Kylie Jenner set her five-year-old daughter Stormi up to have $14 million tax-free dollars in retirement using a loophole that you can use, too! No, you do not need to be a Kardashian-Jenner, or have a million bucks, to make your children millionaires. All you need to do is make this one money move. Nicole explains. All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Public Investing, Inc., member FINRA & SIPC. Public Investing offers a High-Yield Cash Account where funds from this account are automatically deposited into partner banks where they earn interest and are eligible for FDIC insurance; Public Investing is not a bank. Brokerage services for alternative assets are offered by Dalmore Group, LLC, member FINRA & SIPC. Brokerage services for treasury accounts offering 6-month T-Bills are offered by Jiko Securities, Inc., member FINRA & SIPC. Banking services are offered by Jiko Bank, a division of Mid-Central National Bank. Securities investments: Not FDIC Insured; No Bank Guarantee; May Lose Value.  Brokerage services for Regulation A securities are offered through Dalmore Group, LLC, member FINRA & SIPC. Risks at public.com/disclosures/alts-risk-and-conflict-of-interest-disclosure See public.com/#disclosures-main for more information.

I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start, or even too complicated, if, say, you want to put your summer home in Maine on Airbnb, but you live full-time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you.

I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no

maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits

apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Kylie Jenner, a woman who needs no introduction, has set her five-year-old daughter Stormi up to have $14 million tax-free by the time little Stormi is ready to retire. True, Kylie has buckets of money. Forbes called Kylie Jenner the youngest self-made billionaire. Whether or not Kylie is self-made is a little debatable, but it doesn't matter whether you are or aren't a billionaire because anyone can use the same money moves as

Kylie and make their kids millionaires. This is one of the best-kept secrets in the financial world. You do not have to make a million dollars to make your kids millionaires. Pick your jaw up off the floor and let me tell you how to make this happen for your fam. This is how Kylie did it. When Kylie's daughter Stormi was two, she appeared in a commercial for Kylie's brand Kylie Baby. Because Stormi was in the commercial, she could get paid for that appearance as an actor and Kylie could open what is called a custodial Roth IRA account for Stormi. A custodial Roth IRA account is exactly what it sounds like, a Roth IRA that a guardian can open for their kid. The only real requirements is that the Roth IRA has to be funded by some income that the kid earned. So in Kylie's case, any income that Stormi earns as a model or actor

in promotional materials or videos for Kylie's brand can totally go to her custodial Roth IRA. If Stormi via Kylie continues to max out the Roth IRA contributions, then she will have over $14 million when she retires. And because it's a Roth IRA, not a traditional IRA, when Stormy goes to use that money in retirement, it will be totally tax-free. Okay, I'll cop to something. I don't actually know if Kylie set this up for Stormy because the Kardashian-Jenners aren't going around giving interviews about their tax-advantaged retirement strategies. So silly, right? What else would they be talking about or posting about? But I can say with confidence that Kylie Jenner has the best accountant that thirst trap photo money can buy. So it's reasonable to assume that

her accountant or perhaps team of accountants are probably recommending a custodial Roth IRA for her because that is bar none the smartest move for the next Kardashian generation. For this reason, the custodial Roth is a popular move amongst the rich and the famous. Blue Ivy, for example, has been a backup dancer on tour with her mom, also known as Beyonce. So whatever Blue is earning on stage, she can put in a custodial Roth IRA. But this isn't Blue's first time working for Boss B. She has been earning income from Beyonce and her dad Jay-Z since she was an infant, literally. When she was just two days old, Jay-Z used audio of her crying in his song Glory. But again, you don't have to

be Beyonce or a Kardashian to use this money move. The only prerequisite is that your kid is earning money that can fund the custodial route. So how do you make this happen? Well, if you own your own business, it is super easy to employ your kid as a model in marketing materials, or if they're in their teens, maybe they can do something a little more involved like running your social media account or helping organize your office. If you don't have a business, just lean into what many preneurs have been doing forever now. Lemonade stands, yard sales, dog walking,

any of these tried and true kid-friendly gigs will work. So that's step one, your kid has to earn some money and it's about time they did anyway, right? Step two, you have to set up a custodial Roth IRA. And for anyone who up until this point has been thinking what the actual F is a custodial Roth IRA ira and for anyone who up until this point has been thinking what the actual f is a custodial roth ira weapon i got you let's forget the custodial part for a second a roth ira is a type of retirement account that qualified people can set up for themselves anytime in order

to be said qualified people there are certain income limits so 2023, you could contribute to a Roth IRA if you file your taxes solo and make less than 153 grand a year, or if you file your taxes with a spouse and make less than $218,000 a year. If you make more than these income ceilings, first, yay for you. And second, there is a perfectly legal loophole to start a Roth. I did a whole episode on this and you can find that linked in the show notes. But let's assume you can just set up a Roth IRA in one step. The special perk of a Roth is that you contribute post-tax dollars and your distributions are tax-free in retirement. Let me break that down. The way a Roth IRA is structured allows you to take money out of the account in retirement

without having to pay income taxes on that money. This is unlike the traditional IRA where you can contribute pre-tax dollars, but when you take that money out in retirement, those withdrawals are taxed. Both Roth and traditional IRAs have contribution limits. This year, there's a new limit. The max amount you can contribute to your Roth IRA is seven grand if you're under 50 years old or eight grand if you're over 50. Now we're ready to get into the custodial part. Conceptually, I think you got this. It just means the account is a Roth IRA that's set up for a kid by a guardian like Stormy's Roth set up by

Kylie. Probably. Let's go a layer deeper and tackle the nuts and bolts of setting up this account as a guardian you can probably set up a custodial roth ira with whatever brokerage you've used to set up hopefully your own roth ira but because custodial roth iras are a little bit more complicated than a personal roth ira it's worth double checking that your brokerage supports a custodial roth once you've set up that account, your kiddo can contribute whatever they've earned up to that 7K limit. And then, and this is the mistake I see all the time, you actually have to invest the money that's in the account. It's not like you can just drop 7K in the account and it magically grows by 8%.

You have to actively invest that money, and that's where the compound interest and growth and all the yummy good stuff happens. So which investments should you pick for the Roth? Because that money is likely going to be sitting in that account for a while, there is nothing wrong with sticking to a classic and investing that money in low-cost S&P 500 index funds. This process, maxing out a contribution and investing, you're going to want to rinse and repeat that every year your kid has income. And then when your mini-me is grown, they'll get control of the account. What age this handoff happens depends on what state you're in, but it will either be on your kid's 18th or 21st birthday.

From there, your kid has to do their own Roth contributions themselves, and if they stick with maxing out those accounts, they too can be stormy rich. For today's tip, you can take straight to the bank. While the money in a Roth IRA is pretty strictly reserved for retirement, your kids can use the money in their Roth to cover education expenses like college tuition. Typically, you can't take withdrawals from your IRA before retirement without getting hit with a 10% penalty, but education expenses are one of the few exceptions to this rule. And if you start funding a custodial IRA when your kid is two, they're going to have over $200K in their account by the time they're ready for freshman year of

college. I love hosting on Airbnb. It's a great way to bring in some extra cash, but I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up

a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by

using a time checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bank Corp Bank N.A. or Stride Bank N.A.

Members FDIC. Spot me eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in Spot Me and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin.

Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself,

which is the most important investment you can make. Thank you.