Investing
February 5, 2019

Can I Open a Roth IRA for My Kid?

Simple. Thrifty. Living.

If you want to help your child build wealth and a large retirement fund, then it’s important to have them start investing early. One way to get this done is by opening up a Roth IRA for your child. You can open a Roth IRA for your child as long as they qualify. But it’s important to understand the basics. Here’s what you should know:

Since there are no age restrictions for contributing to a Roth IRA, you can open a Roth IRA for your child at any age. However, your child must have earned income to be eligible for opening a Roth IRA.

Additionally, an adult must open the Roth IRA for the minor in a custodial account. Opening a Roth IRA account is simple and convenient when you do it online. Just choose a bank that offers a custodial Roth IRA, such as Charles Schwab or Fidelity. You’ll also need your tax documents to prove your child’s earned income and provide personal information for you and your child, such as your Social Security numbers. You are required to transfer the account to your child once he reaches 18 or the majority age in the state where he lives.

Before you open a Roth IRA, it’s important to consider the benefits and drawbacks it may bring. A major benefit of opening a Roth IRA for your child is that it gives them the opportunity to start saving for retirement early so that their funds have more time to grow.

A Roth IRA also provides the flexibility and convenience to make withdrawals at any time. Additionally, your child won’t owe any taxes on any withdrawals she makes during retirement. You also get to teach valuable financial management skills when you expose your child to investing early.

However, a major drawback to opening a Roth IRA for your child is that she has to have earned income that is filed and taxed. That means you cannot open the account with a gift or investments. Roth IRAs also aren’t tax deductible. Also, there are limitations to Roth IRA contributions. In 2019, Roth IRA contributions cannot exceed $6,000 or the total earnings made for the year. That means if your child earned $3,000 for his part-time dog-walking services, then the most you can contribute to that account for that year is $3,000.

Saving for your child’s retirement jump-starts her retirement fund’s potential to grow more over time, and a Roth IRA can help you achieve this goal. By understanding the basics, you can make a more informed decision on opening a Roth IRA for your child.

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