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Establish a Roth IRA for Your Child Today

establish a roth ira for your child

Teach Your Child About Saving

A sad fact is, your child will likely not be taught about the U.S. retirement system in school. More likely than not, he or she will understand the power of tax-deferral later in life, and will have lost several years of contributing to a retirement plan, such as a Roth IRA. Don’t let that happen!

As a parent, take it upon yourself to instill the knowledge of retirement saving so your son or daughter can become a multi-millionaire by the time he/she reaches retirement.

If your child is too young to get a job and has accrued a substantial amount of money from holiday and birthday gifts, you can take that money and put it towards a savings account until the time comes to establish a Roth IRA for your child.

Key Points
  • It’s important to teach your children financial independence at a young age – establishing a Roth IRA on their behalf is a great way to do this.
  • Although you can establish a Roth IRA for your child, it must be a custodial Roth IRA.
  • A Roth IRA is great for younger demographics, as it gives them many years to generate tax-free growth.

This will create an opportunity to teach your child the importance of saving for the future – after all, no one knows what the future holds, so it’s best to be fiscally prepared. This is an important financial lesson to pass onto your children during the formative stage of their life.

Can I Establish a Roth IRA for My Child?

This is a frequently asked question among fiscally responsible parents who wish to set their children up for a comfortable retirement future. The answer is, yes: you can establish a Roth IRA for your child. However, your child must generate income from a bona fide job – it cannot be passive income, like money they receive as presents.

According to President of IRA Financial, Adam Bergman, saving for retirement only requires three steps:

  1. Start young
  2. Be consistent
  3. Trust the process of tax-deferral

Start Young

If your child is too young to be employed at a job where they will receive a W-2, encourage them to walk the neighbor’s dog, babysit, or mow lawns. You can then take a portion of their income and contribute it to their Roth IRA. Mind you, so long as they have earned income, you can contribute on their behalf. However, it’s best to let them put their own money in (but you can help if you wish!).

The most important step when it comes to saving for retirement is also the first step: start young. By helping your children establish a Roth IRA and making contributions on their behalf, your son or daughter is now way ahead of the game.

Be Consistent

Don’t forget that it’s very important to be consistent over the years, so be clear when teaching your child the importance of consistent, annual contributions. That way, he or she will be comfortable setting aside a portion of their paycheck for the future.

“Trusting the process” is something that happens over the years – they’ll figure this out as they go through the process. Of course, there may be times you simply cannot afford to make those annual contributions. That’s okay! When you can, resume your IRA funding, and try to make up for the time you miss when you are able.

Facts About Roth IRA for Your Child

Here are some quick facts before you establish a Roth IRA for your child.

  • Children of any age can contribute to a Roth IRA as long as they have earned income.
  • You need to open a custodial Roth IRA, which is an individual retirement account for minors, held by a custodian. The same rules and benefits of a traditional IRA or Roth IRA will apply.
  • The Roth IRA contribution limit in 2023 is $6,500, but if your child earns less than $6,500 a year, they can still contribute the smaller amount to the Roth IRA.
  • When your child grows up and reaches age 59 1/2, he or she can withdraw from the plan tax- and penalty-free
  • Contributions can be withdrawn at anytime in case of an emergency. However, earnings will be penalized and taxed if taken early.

Why Open a Roth IRA

Not all of us can rely on a work-sponsored retirement plan, therefore must establish an IRA, whether Traditional or Roth. The major difference between both IRAs is that the Roth IRA is funded with after-tax money, resulting in tax-free income and gains on the investments.

Everyone can take advantage of a Roth IRA, but it’s especially beneficial for younger demographics because they have many years to generate tax-free wealth and withdrawals.

Contributing your money to a retirement plan is better than putting that money in a savings account, thanks to the power of compounded interest. With time, the contributions and investments you make will earn more money. Your child will have 50 or more years to watch their investment grow tax-free, and that’s all thanks to you getting them started at such a young age.

Get Started Today

If you wish to establish a Roth IRA for your child, don’t hesitate. Not only will you put him or her on the right track, you can teach them financial responsibilities and patience! If you have any questions, please give us a call @ 800.472.1043 today! It will be the best phone call you make all year!


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