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A Child Roth IRA For Your Kids

Can you open a child Roth IRA for your kids?

This is a common question among parents looking to secure a solid financial future for their children.

And the answer is...


Of course, there is one caveat...

Your child needs to generate earned income or compensation. Only then can you set up a Custodial Roth IRA for your child.

Can Your Child Have a Roth IRA?

So if you've been wondering... Yes, your child can have a Roth IRA.

If they have earned income...

And that's the big qualifier. Since there's no age restriction on who can or can't contribute to a Roth IRA, the only real stumbling block for a child Roth IRA is earned income.

And earned income is not always easy for kids to come by. But...

It's certainly doable. After all, kids have a history of working for the family business, cutting grass, babysitting, lifeguarding, and working other part time jobs and summer jobs which generate earned income.

And that earned income makes them eligible to open and fund a child Roth IRA.

Why Set Up A Roth IRA for Your Child?

So now that you know you can set up a child Roth IRA for your kids, the inevitable question is...

Why set up a Roth IRA for your kids?

That's a good question, and here's the short answer...

Because the longer your investment time horizon, the bigger the payoff.

Think about it...

Roth IRA investments grow income tax-free and capital gains tax-free until the account holder's date of withdrawal after age 59 ½. That tax-free compounding growth becomes quite a bit of money down the road.

In fact, an extra ten years of compounding can make all the difference in the world.

For instance, let's say you open and fund a Roth IRA at age 25. You invest $5,000 at an 8% rate of return.

At age 60, how much money do you have?


Now, let's say you open and fund a Roth IRA at age 15 instead. You invest the same $5,000 amount at the same 8% rate of return.

At age 60, how much money do you have?


That's a difference of $85,676.24!

That's more than double the amount you have if you wait until age 25 to open and fund a Roth IRA...

So are you still wondering why it's such a good idea to set up a child Roth IRA for your kids?

Some Disadvantages of a Roth IRA for Your Kids

Given the amount of money a child Roth IRA can generate for your kids, it's clear what the advantage of such an arrangement is.

But what are the disadvantages?

Well, one disadvantage of opening a Roth IRA for a minor is the inability to withdraw principal contributions.

Remember, with a Roth IRA, you can withdraw your principal contributions at any time tax-free and penalty-free. After all, it's your money. You already paid income tax on it. So the IRS lets you withdraw those funds free and clear.

But that's not the case with a Roth IRA for your kids. You can manage funds for them, but you can not withdraw funds for them. And since they aren't of legal age to make withdrawals on their own, the money can NOT be withdrawn until they reach the age of majority.

So once you fund that Roth IRA, it's funded... No principal contribution withdrawals until your child reaches the age of majority.

So make sure it's a decision you want to stand by. Which, of course, leads us to the next question...

What's the age of majority?

The age of majority is the age at which your child becomes the legal owner of the Roth IRA. Once they reach that age, you are no longer the legal custodian of the Roth IRA account, able to make investment decisions on their behalf.

So at what age does your child reach majority age?

Usually between the ages of 18 and 21 (it really depends on the laws in your particular state of residence).

So what's my point in bringing this up?

Well, it highlights a disadvantage.

After all, once your child reaches majority age, he or she can do whatever they want with the Roth IRA.

If your child is irresponsible, or even a straight A college student, they might find the temptation to withdraw their Roth IRA funds irresistible. After all, think of the party you can throw with X number dollars. It's a big party, right?

While having a child come of age and squander money from a Roth IRA is a potential pitfall you need to be aware of, don't let it overly effect your decision. Remember, it's not the end of the world if your child squanders a bit of money.

In fact, irresponsible handling of money early in life can teach your kids a valuable lesson early on, when all they're wasting is an early jump on retirement instead of years of ruined credit or lifetime of financial missteps.

Opening a Roth IRA for a Minor

So, if you measure all the pros and cons and decide to move forward with a child Roth IRA for your kids, how do you go about setting one up?

Most online discount brokerage firms allow you to open what's called a Custodial IRA account.

Just follow the instructions on the website of the discount broker you choose. Since your child is not of legal age to open a Roth IRA account, you need to do this on your child's behalf. You are then authorized to fund and manage the account for the benefit of your child.

Just remember, funds placed in the account are considered an irrevocable gift and immediately become the property of your child. So remember, you can't change your mind a month later and ask for the funds back.

Once you open a Roth IRA for a minor, it's open and funded until they legally assume ownership in adulthood.


The law is clear. A child can open and fund a Roth IRA if they have eligible earned income to contribute.

However, since a child can't legally open and maintain a brokerage or investment account, you need to open a Custodial Roth IRA account for them.

In doing so, you give your child a tremendous early advantage in saving for retirement, because time and the power of compound interest work on their behalf.

Just be aware that you can't withdraw principal contributions from your child's Roth IRA until they reach the legal age of majority, and when they do, you might object to what they do with the funds in their account.

With those thoughts in mind, opening a child Roth IRA for your kids is a great idea which can give your children a significant head start in terms of saving for retirement.

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