retirement

Roth IRAs Are for Kids, Too

Children of any age can open a Roth IRA as long as they have earnings from a job. The long-term rewards are impressive.

My son is working as an umpire for youth baseball games and is earning money for the first time. Can he contribute to a Roth IRA even though he’s only 15 years old? Which companies offer good Roth IRAs for kids?

There’s no minimum age requirement to open a Roth IRA, so your son can open one as long as he has earned income from a job (investment income doesn’t count). He can contribute up to the amount he earned from working this year, with a maximum of $5,500 for 2016. You’re allowed to give him the money to make the contribution.

Not all IRA administrators offer Roth IRAs for minors, but many do. Look for a firm with low investment minimums and low or no administrative fees. TD Ameritrade and Fidelity have no investing minimums or annual fees for their custodial IRAs. Charles Schwab requires $100 to open a custodial Roth IRA but charges no annual or maintenance fees. These brokerage firms offer the same mutual funds, stocks and other investments in their custodial Roth IRAs as they do in their regular IRAs.

Most firms require two names to be on a custodial Roth IRA account: the minor and an adult, who doesn’t have to be a parent or grandparent. The adult generally receives the account statements and controls the account as long as the child is a minor (until age 18 or 21, depending on the state).

Opening a Roth IRA is a great way to jump-start your son’s savings. If he needs money before retirement, perhaps for a down payment on a house or college costs or to supplement an emergency fund, he can withdraw the contributions tax-free and penalty-free at any time. Longer term, he can accumulate a significant balance and, after age 59½, withdraw the earnings without penalties or taxes.

A 15-year-old who contributes $3,000 today will have more than $34,000 by age 65 just from that initial contribution, assuming his investments earn 5% per year. If he continues to contribute $3,000 every year and his investments earn 5% per year, his account will be worth more than $650,000 by the time he turns 65.

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