Set up a Roth IRA for your kids


One of the benefits of paying your kids is that now they have earned income. This means they may be able to open and fund a Roth IRA! For example, if you paid your child $6,000 in wages for the year, they could open and fund that entire amount into a Roth IRA for this tax year. Imagine the power of setting up your 10-year-old with possibly 60 years of tax-free growth inside their Roth IRA!

Many IRA administrators will let you open a Roth IRA for a minor, but you may need to sign some extra forms.

You can, for instance, open a Vanguard Roth IRA for a minor with a minimum of $1,000 and invest in a variety of mutual funds. For a teen's IRA, Vanguard spokesman John Woerth recommends Vanguard's Target Retirement Funds, a broadly diversified portfolio of four to five low-cost index funds based on your investing time frame.

A minor with less than $1,000 to invest can open a brokerage IRA at Vanguard and invest in stocks or exchange-traded funds. Vanguard usually charges a $20 annual fee for accounts with less than $10,000, but it waives the fee if you sign up for electronic delivery of statements, confirmations and other documents.

Many of LaBrake's clients open custodial Roth IRAs through Charles Schwab. These accounts require a minimum investment of $100 with no maintenance fees. Fidelity and TD Ameritrade also offer custodial Roth IRAs with no minimum investment and no maintenance fees.

Your child may cringe at the idea of saving her paycheck for retirement. But you can give her money to put into the Roth or match her contributions to help her develop a savings habit.

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  • over 2 years ago by vince