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Ask Kim

Act Fast to Make Roth IRA Contributions for Your Child

Junior can fund a Roth as long as he has earnings from a job. But the deadline for making contributions for 2015 is April 18, 2016.

My 16-year-old son worked as a camp counselor last summer. Can he contribute to a Roth IRA?

See Also: 10 Things You Must Know About Roth Accounts

Yes. There’s no minimum age requirement to contribute to a Roth IRA; your child just needs to have earned income from a job. And it’s a great idea to start making Roth contributions as early as possible and start building a tax-free stash of money for the future. Your son will be able to withdraw the contributions anytime without taxes or penalties (for college or a down payment on a house, for example), and he can tap earnings tax-free after age 59½.

Your son can contribute up to the amount of money he earned from his job in 2015, up to a maximum of $5,500. And he doesn’t have to use all of his own earnings to contribute to the account; you can give him the money for the contributions.

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Not all IRA administrators offer custodial Roth IRAs (Roths that minors can open), but many do, and they usually offer the same investing options as for any IRA. TD Ameritrade, for example, has no investing minimums or annual fees for its IRAs. Fidelity has no minimum or annual fees for custodial Roth IRAs. Charles Schwab requires $100 to open a custodial Roth IRA, but it charges no annual or maintenance fees.

You may need to take a few extra steps to open the account for the minor. With Fidelity, for example, you’ll fill out a similar form as for any IRA, but two names need to be on the account – the minor and an adult (who can be any adult, not only a parent or grandparent). The adult maintains control of the account and is the sole recipient of account statements and communications while the child is still a minor (usually until the child is age 18 or 21), says Fidelity spokeswoman Kim Reingold.

You still have until April 18, 2016, to make IRA contributions for 2015. But you’ll have to act quickly. Some brokerage firms have cutoff times before the end of the day on April 18 to allow for processing. With TD Ameritrade, for example, checks must be postmarked by April 18, and ACH (electronic transfer) and internal transfer requests must be entered before noon central time on April 18, says Matt Sadowsky, director of retirement and annuities for TD Ameritrade. You may also be able to make contributions at a local branch of your brokerage firm, bank or fund company.

If your son earns money from a job again this summer, he’ll be able to contribute up to $5,500 (or the amount of his earned income) to a Roth for 2016, too. See Retirement Plan Contribution Limits for 2016 for more information.

For more information about the benefits of a Roth IRA, see Reap the Rewards of a Roth IRA.

See Also: 10 Things You Must Know About Traditional IRAs

Got a question? Ask Kim at askkim@kiplinger.com.