As parents and grandparents, we’re always looking for ways to give our children or grandchildren a strong start in life. One incredibly effective—yet often overlooked—strategy is opening a Roth IRA for a child who has earned income.
There’s no minimum age for having an IRA. As long as your child earns income—maybe from babysitting, lifeguarding, or working in a family business—they’re eligible to contribute. And the earlier they start, the more time their money has to grow thanks to the power of compound interest.
Here’s a quick example: If a child contributes just $7,000 a year from age 14 to 24, and averages a 7% annual return, they could have over $1 million by age 61—even if they stop contributing after age 24.
There are five simple steps to get started investing in Roth IRAs to help children.
First, open a guardian Roth IRA for your child. Many custodians offer these now.
Second, if your child wants to spend their earnings, you can gift them the contribution amount.
Third, choose a Roth IRA over a traditional IRA. Roth’s offer tax-free growth and the flexibility to withdraw contributions at any time.
Fourth, invest the funds for long-term growth—children have the benefit of time and can ride out market fluctuations.
And finally, keep good records. Make sure the income is documented and reported properly on a tax return.
If you’d like to learn more about this powerful opportunity, download our free guide: “Using Roth IRAs to Help Children in 5 Easy Steps.” You’ll find it below this video.
And of course, if you have questions or want help setting up an account, give our office a call to schedule a time to talk. You may also schedule a virtual consultation on our website.
Contact lead advisor Chris Robinson, ChFC, at our office, 940-464-4104, to schedule a time to discuss your beneficiary or investment questions.
RFG Wealth Advisory in Argyle, Texas, is an independent, fee-only Registered Investment Advisor firm that always puts our client’s interests first. We have a transparent, simple fee structure that’s easy to understand. Call us today!
Financial success doesn’t happen by chance. Let’s plan for it—together.
