Close Menu

    Subscribe to Updates

    Get the latest creative news from FooBar about art, design and business.

    What's Hot

    Walgreens Store Closures: Full List of Locations Shutting Down This Month

    June 4, 2025

    Expert Predicts Summer 2025 Travel Deals: 5 Budget-Friendly Destinations to Book Now

    May 28, 2025

    Walmart Addresses Trump’s Demand to Cover Tariff Costs

    May 25, 2025
    Facebook X (Twitter) Instagram
    Friday, June 6
    X (Twitter) Instagram
    NinepenniesNinepennies
    • Home
    • Featured

      The Highest-Paying Jobs in America—And It’s Not in Finance!

      March 27, 2025

      7 Must-Buy Costco Sale Items Before They’re Gone This February 

      February 10, 2025

      Steel Stocks on the Rise: 3 Winners After Tariff Announcements

      February 4, 2025

      The Best Oil Stocks to Invest $200 in Right Now

      January 28, 2025

      Top 10 Best Jobs of the Year: High Demand, Six-Figure Salaries, and Bright Futures

      January 23, 2025
    • Entrepreneur News

      Walgreens Store Closures: Full List of Locations Shutting Down This Month

      June 4, 2025

      Walmart Addresses Trump’s Demand to Cover Tariff Costs

      May 25, 2025

      Walgreens Expands Use of Prescription-Filling Robots to Reduce Costs and Support Pharmacists During Turnaround

      May 15, 2025

      Hooters Declares Bankruptcy

      April 8, 2025

      Costco to Open 6 New U.S. Stores Next Month and Another in April—See the Locations and Dates

      February 28, 2025
    • Financial Wellness

      Smart and Risky Spots To Store Your Cash, Coins, Crypto, and More

      April 24, 2025

      The Minimum Salary Needed to Be in the Upper-Middle Class in 2025

      March 21, 2025

      Should You Buy, Sell, or Hold Amazon in 2025?

      March 7, 2025

      From Hawaii to West Virginia: The Shocking 77-Year Gap in Retirement Savings Longevity

      February 24, 2025

      Are the 3 Highest-Paying Dividend Stocks in the Dow Jones Worth Buying?

      February 17, 2025
    • Popular Now

      European Markets Climb as Trump Moves to Cut Tariffs on Auto Parts

      May 1, 2025

      Robinhood Expands Trading to Include Bitcoin, Oil, and Gold Futures 

      January 30, 2025

      Powerball Winning Numbers for January 18: Oregon Player Takes Home $328.5 Million Jackpot

      January 21, 2025

      Morgan Stanley Surpasses Estimates With Robust Equities and Fixed Income Trading Revenue

      January 20, 2025

      10-Year Treasury Yield Edges Lower Amid Anticipation of Economic Data, Fed Remarks

      November 21, 2024
    • Wealth

      America’s 10 Wealthiest Self-Made Women, According to Forbes— #1 May Surprise You

      February 5, 2025

      8 Wealthiest Royals in History

      February 4, 2025

      One Powerful ETF That Grew $10,000 to $55,000 in a Decade: Is It Worth Buying in 2025?

      January 28, 2025

      Coinbase CEO Predicts Bitcoin Could Hit Multi-Million Dollar Value

      January 24, 2025

      Dogecoin Surged After Elon Musk’s Appointment: What’s Happening With This Popular Meme Coin?

      November 18, 2024
    NinepenniesNinepennies
    Home » Steps To Opening a Roth IRA for Kids
    Featured

    Steps To Opening a Roth IRA for Kids

    DeborahBy DeborahSeptember 12, 20247 Mins Read
    Share Facebook Twitter Pinterest LinkedIn Tumblr Reddit Telegram Email
    Roth IRA for kids
    Source: Pinterest
    Share
    Facebook Twitter LinkedIn Pinterest Email

    Investing in a retirement account for your kid might sound insane, but it’s one of the easiest ways to transfer and build generational wealth, and a Roth IRA for kids can be a good start. You can consider opening a Roth IRA for your kids to help them prepare for their financial future and the benefits of saving early in life.

    It also creates a financial safety net for them that can be used for major life expenses like college, a home purchase, or retirement. Plus, with the power of compounding interest, your child’s savings can grow significantly over time.

    Roth IRA for kids 2024
    Source: Pinterest

    While money in a Roth IRA account is easier to withdraw once you’re 59½ years old, contributions to a Roth IRA can be withdrawn without taxes or penalties at any time. Also, if your child is able to contribute to a Roth IRA while still in high school or college, they’ll have millions of dollars in tax-free income in retirement if they leave that money untouched.

    What Is a Roth IRA for Kids?

    A Roth IRA for kids is commonly called a custodial Roth IRA for kids. A custodial account is one that is opened and managed for a child by an adult (the custodian), usually a parent. The child gets full control of the account once they reach between the age of 18 and 25, depending on the state. 

    The money in a custodial account belongs to the child at all times. The tough thing about custodial Roth accounts is that you can only make contributions if your child earns income. 

    If your child works during their younger years, or if you want them to get a summer job as teenagers, you will be able to contribute to their Roth IRA up to the yearly contribution maximum ($6,500 in 2023) of the earned income. 

    Roth IRA for kids
    Source: Pinterest

    If your child is able to contribute $24,000 to a Roth IRA by the time they become 18 years old, it can grow to an impressive amount when they reach retirement age. 

    That $24,000 invested in a top low-cost index fund—like the Fidelity Total Market Index Fund (FSKAX), earning an average annualized return of 7.99% since its founding in 1997—will be worth $1,025,507.47 when your child turns 65. That’s tax-free money without ever having to contribute another dime after the age of 18. 

    ALSO READ: Top Checking Accounts for Teens in July 2024

    How to Open a Roth IRA for Kids

    Opening a Roth IRA for kids is a simple process, but there are a few steps you should take to make sure everything is set up properly.

    • Make Sure Your Child Earns an Income: In order to make contributions to a Roth IRA, a person must have earned some income. This rule applies to both adults and children. 
    • Find a Financial Institution: Some institutions also specialize in offering the best Roth IRA for kids. For instance, companies like Fidelity, Charles Schwab and Vanguard are good choices. 
    • Open an Account: Be ready to provide the child and custodian’s names, addresses, date of birth and Social Security numbers. 
    How to open a Roth IRA for your kids
    Source: Pinterest
    • Fund the Account: Decide how much to be contributed; it could be up to 100% of the child’s earned income or the $6,500 annual limit, whichever is lower. Using an electronic transfer from a bank account is the easiest way to do this. 
    • Invest Your Contributions: It takes a few days for funds to clear the account before you can start investing them. Set a calendar reminder to make sure you don’t forget and leave the money earning almost no interest for decades. 

    Since your child has a long enough time period to weather ups and downs, low-cost exchange-traded funds (ETFs) or mutual funds that invest in the entire S&P 500 or the entire U.S. stock market would be a good choice.

    What Are the Rules for a Roth IRA for Kids?

    Though it’s quite easy to set up a Roth IRA for kids, there are some rules and guidelines that you must follow: 

    • There is no minimum age limit to contribute to a Roth IRA for kids. An infant can contribute up to the annual limit to their Roth IRA if they are chosen as the next Gerber Baby and make $10,000 in their first month of life. 
    • The contribution limit is $6,500 per year, or 100% of the child’s earned income, whichever is lesser. 
    • Gift income does not count toward earned income for contribution eligibility. 
    • Contributions are not eligible for tax deductions. 
    • Growth in the account and qualified distributions are not subject to taxes. 
    • Contributions can be withdrawn anytime without penalty. 
    The rules for a Roth IRA for kids
    Source: Pinterest
    • Except in some cases, earnings cannot ordinarily be withdrawn without penalty until your child turns 59½ years old.
    • Up to a certain amount of earnings can be withdrawn without penalty for a variety of purposes, like paying for college, buying a first home, certain medical bills, or any purpose following a total and permanent disability.
    • Early withdrawals of earnings that do not qualify for one of the exceptions are subject to an IRS penalty tax of 10% plus any applicable income taxes.
    • When the child reaches the age of majority in their state, the custodian can no longer control the account.
    • Until tax laws change, the child will never have to take the required minimum distributions from the account in retirement. 

    ALSO READ: A Mother Teaches Her Kids Personal Finance by Asking Them To Pay Some Bills

    Benefits of a Roth IRA for Kids

    There are many benefits that come with a Roth IRA for kids that go beyond just retirement savings. Here are some key benefits:

    • Tax-Free Growth: The money in a Roth IRA grows tax-free since contributions are made with after-tax dollars. Your child won’t be responsible for paying taxes on the earnings as long as the money is used for qualified purposes, including retirement.
    Benefits of a Roth IRA for kids
    Source: Pinterest
    • Flexibility: The main goal of a Roth IRA for kids is retirement savings, but your child can use the money without facing penalties for other major life expenses like a Roth IRA for kids college (Roth IRA for kids education) or buying their first home. 
    • Compounding Interest: Your child can benefit from compound interest if a Roth IRA is opened for them at an early age. When money is invested for an extended period of time, it has more time to grow and could result in sizable savings by the time the person reaches retirement.

    Why You Should Consider Starting a Roth IRA for Kids 

    A Roth IRA for kids is more than just a retirement account; it is an investment in their future. If you want to give your child the best possible start in life in terms of finances, you should consider starting a Roth IRA for kids. 

    There are many benefits to it, and if you start your child off early, you can help them build wise money habits. You can also provide them with the financial foundation they need to prosper in their adult lives.

    Considering a Roth IRA for kids
    Source: Pinterest

    A Custodial Roth IRA for kids will give your child a head start on retirement savings. While the money may start small, there is a great chance for future profit, especially if started early in life. It’s never too early to start planning for your child’s financial success!

    You Might Also Like: 

    Economist Warns That a Major Fed Interest Rate Cut This Month Could Pose Significant Risks to Markets

    Harris Proposes 28% Capital Gains Tax, Lowering Biden’s Initial 40% Plan

    Biden Set to Block $14.9 Billion Steel Deal, Delivering Major Blow to Key U.S. Ally

    Visa Reveals Its Plan To Launch a New Product That Will Make Direct Bank Account Payment Safer

    Ken Griffin Citadel Hedge Fund Navigates Volatile August, Securing a 1% Gain for Wellington

    Share. Facebook Twitter Pinterest LinkedIn Tumblr Email
    Previous ArticleChecking vs. Savings Accounts: Key Differences Explained 
    Next Article Your Guide on How To Buy Gold Bars

    Related Posts

    Editor's Picks

    The Highest-Paying Jobs in America—And It’s Not in Finance!

    March 27, 2025
    Featured

    7 Must-Buy Costco Sale Items Before They’re Gone This February 

    February 10, 2025
    Featured

    Steel Stocks on the Rise: 3 Winners After Tariff Announcements

    February 4, 2025
    Add A Comment

    Comments are closed.

    Top Posts

    How to Delete Credit Karma Account: Step-by-Step Guide

    October 14, 2024

    Home Depot Penny Items: How To Find Them

    October 17, 2024

    Introducing the 2025 Caterpillar Pickup Truck for the U.S. Market

    September 5, 2024
    Stay In Touch
    • Twitter
    • Instagram
    You Might Like

    Subscribe to Updates

    Get the latest tech news from FooBar about tech, design and biz.

    Most Popular

    How to Delete Credit Karma Account: Step-by-Step Guide

    October 14, 2024

    Home Depot Penny Items: How To Find Them

    October 17, 2024

    Introducing the 2025 Caterpillar Pickup Truck for the U.S. Market

    September 5, 2024
    Our Picks

    Walgreens Store Closures: Full List of Locations Shutting Down This Month

    June 4, 2025

    Expert Predicts Summer 2025 Travel Deals: 5 Budget-Friendly Destinations to Book Now

    May 28, 2025

    Walmart Addresses Trump’s Demand to Cover Tariff Costs

    May 25, 2025
    X (Twitter) Instagram
    • Home
    • Editor’s Picks
    • About Us
    • Get In Touch
    • Privacy Policy
    • Terms of Use
    • Editorial Standards
    © 2025 Ninepennies.

    Type above and press Enter to search. Press Esc to cancel.