As a parent, you undoubtedly want your child to make sound financial decisions. This is why you teach them about money early in life, and when they’re old enough, you may have discussions about budgeting, debt and managing credit cards. These discussions can give your kids a firm financial foundation. But like some parents, you may drop the ball when it comes to topics on retirement planning.
If your kids are in their late teens or early twenties, educating them on different retirement options might be the furthest thing from your mind. But it’s never too early to have these discussions. As a matter of fact, the earlier, the better.
Realistically speaking, even if you sit your older children down and stress the importance of planning for their retirement now, there’s a chance that they won’t take you seriously – at least at this stage in their life. This doesn’t mean you should give up. Your children might not be ready to stash cash for their later years, but this doesn’t mean you can’t.
Setting up a Roth IRA for your children is one of the best gifts you can give them. Although not a typical present, a Roth IRA can jump start their retirement savings. This particular individual retirement account offers tax-free retirement income, and once your children fully grasps the magnitude of this gift, they’ll be thankful.
Here are a couple of things to know when setting up a Roth IRA for your children.
- If your child is over the age of 18 and you want to give the gift of a Roth IRA, you cannot open an account in his name – he must open the account himself. After opening a Roth IRA, you can give him money to fund the account. To qualify for a Roth IRA, your child must earn income during the year that the account is opened. It doesn’t have to be a lot – but at least the amount of the maximum yearly contribution, which is $5,500 for 2013. Understand, however, that yearly contributions made to a Roth IRA cannot exceed your child’s yearly income. For this matter, if your child only earns $2,000 a year from a job, the maximum you can contribute to his IRA in that year is $2,000.
- You can also open a Roth IRA for a minor child. Like an account for a child over 18, the minor must earn some income to qualify for Roth IRA contributions. Allowance money is not considered income. The minor’s name and a custodial’s name will both appear on the account, and the minor must provide his tax identification number. Don’t forget to shop around. Unfortunately, there are brokerage firms that do not allow custodial Roth IRAs. However, many firms welcome minors with open arms, waiving annual and maintenance fees, and offering low-mininum deposits on Roth IRAs for kids.
This article was first published on http://moneyprime.com.