A Great IRA Idea

Our practice uses Yellow Pages advertisements with photographs of my daughter and me. The advertisement in our citywide edition utilizes a black and white photograph of my daughter with the caption "a beautiful smile for a lifetime".

The advertisement in our local edition features a color photograph of me holding my daughter with a balloon in her hand and the city skyline in the background. We are smiling adoringly at each other, face to face. The first time I used her photograph, she was two years of age. On the surface, this sounds like a cute story of a father that uses his daughter in his Yellow pages ad. There is, however, an underlying tax and financial planning story here.

I think that it is reasonable to assume that my daughter is due a modeling fee for the photography session and the 900,000 reproductions of her image that appear in the Yellow Pages. My practice compensates her $2,000 dollars for this. Taxes are filed and an IRA in the amount of $2,000 is established in her name.

Imagine the value of this account in 55 ½ years compounding tax free in an aggressive mutual fund. The value of this fund in 55 ½ years assuming a compounded 12 % return would be $1,140,878.16 or $117,811.47 in today’s dollars assuming a 4% inflation rate over this period of time. This is for one single contribution at age two. Can you think of any better gift for your child?

Although this has been a valuable financial tool for me, be sure to check with your own tax advisor or CPA regarding the ramifications this might have on your specific tax situation.