Advertisement
retirement

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?

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.

Advertisement - Article continues below

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.

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.

Advertisement
Advertisement - Article continues below

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.

Advertisement - Article continues below

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.

Advertisement

Most Popular

What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Tax Changes and Key Amounts for the 2020 Tax Year
tax law

Tax Changes and Key Amounts for the 2020 Tax Year

Americans are facing a long list of tax changes for the 2020 tax year...and it's never too early to start thinking about next year's return.
June 22, 2020
10 Tax Breaks for the Middle Class
tax deductions

10 Tax Breaks for the Middle Class

Tax breaks aren't just for the rich. There are plenty of them that are only available to middle- and low-income Americans.
June 30, 2020

Recommended

Avoid Blindly Following Random Benchmarks on the Road to Retirement
retirement planning

Avoid Blindly Following Random Benchmarks on the Road to Retirement

Unless the benchmark is relevant to your personal plan, it could steer you into taking a wrong turn.
July 8, 2020
Where Should You Retire?
retirement planning

Where Should You Retire?

This week, our Your Money's Worth podcast host Ryan Ermey interviews co-host Sandy Block about her recent story about the best retirement destinations…
July 7, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020
Searching for the Perfect Place to Retire
Empty Nesters

Searching for the Perfect Place to Retire

We home in on two places with less traffic and lower costs. 
July 2, 2020