Advertisement
Roth IRAs

Can Your Child Open a Roth IRA?

Find out if your kid qualifies for this tax-sheltered savings plan. Plus, how much to contribute and which companies will open an account for a minor.

I read in Kiplinger's magazine that in 2008 kids can make a contribution to a Roth IRA of up to $5,000 or 100% of their earned income, whichever is less. Does that include any kind of earned income? For example, if my son has a job where he receives a W-2 form, and he also mows laws on the side and is paid in cash, can he include the income earned from both jobs? If so, how do you record the cash earned from mowing lawns?

Advertisement - Article continues below

Yours is one of the most common questions I get regarding Roth IRAs for kids. So it's worth emphasizing that in order to open a Roth the critical factor is earnings: A child can have a Roth IRA as long as he or she has earned income from a job. Birthday gifts from grandparents or interest on a savings account don't count, nor does an allowance for doing general household chores.

A W-2 form is the most straightforward proof of earned income. But earnings from a job such as mowing lawns or baby-sitting qualify, too.

The best way to handle your son's income is to keep careful records of each job, when it was done, for whom, and how much he was paid. And it would make a stronger case if he mowed lawns not just for you but for other customers as well.

How much to contribute

My daughter earned about $1,500 last summer working as a lifeguard. Is there still time for her to contribute to a Roth IRA for 2007? If so, can I add an additional $2,500 to bring her up to the $4,000 contribution limit for 2007?

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

Yes, your daughter has until April 15 to contribute to a Roth IRA for 2007. But she can contribute only the amount of her earnings -- in this case, $1,500.

If she has already spent the money, or if she's saving it for college or some other goal, you can come up with the cash to fund the account. But you can't kick in more than her actual earnings.

An open door for minors

Where can I open a Roth IRA for my 15-year-old son? I've tried a couple of financial companies, but I've been told that he has to be 18.

Some companies -- notably Fidelity -- have a policy of not opening IRAs for minors. But plenty of other banks and investment companies do.

Among brokerage firms, Charles Schwab, E*Trade, Muriel Siebert, Scottrade and TD Ameritrade welcome IRAs for kids, as do mutual fund families American Century, T. Rowe Price and Vanguard.

Also on the list: Bank of America, Citibank and PNC.

Minimum investments vary. Schwab will open a kid's IRA with as little as $100; TD Ameritrade and Muriel Siebert have no minimums. At American Century and Vanguard, the minimum is the same as the minimum investment for the fund you want to buy.

Advertisement
Advertisement

Most Popular

What Trump's Payroll Tax Cut Will Mean for You
Tax Breaks

What Trump's Payroll Tax Cut Will Mean for You

President Trump issued an executive order to suspend the collection of Social Security payroll taxes. How much will it save you?
August 10, 2020
7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020
How a Second Stimulus Check Could Differ from Your First One
Tax Breaks

How a Second Stimulus Check Could Differ from Your First One

The HEROES Act, which the House passed in May, would authorize another round of stimulus checks. While the new payments would be similar to the first …
August 11, 2020

Recommended

Drawing Down Retirement Savings in a Pandemic
Coronavirus and Your Money

Drawing Down Retirement Savings in a Pandemic

Tapping the right accounts at the right time matters. Knowing how much a retiree can spend each year without running out of savings in old age is even…
August 7, 2020
Planning for Retirement in the New Normal of Covid-19
retirement planning

Planning for Retirement in the New Normal of Covid-19

Here are four ways we all need to adapt to keep our financial plans on track as the nation grapples with the coronavirus pandemic.
August 6, 2020
Who Can Still Do a Stretch IRA after the SECURE Act: Explaining the Exceptions to the Rule
IRAs

Who Can Still Do a Stretch IRA after the SECURE Act: Explaining the Exceptions to the Rule

Many beneficiaries who inherit IRAs lost a major tax break recently, but five types of people still qualify for this “stretch IRA” benefit. Are you am…
August 3, 2020
Turning 60 in 2020? Expect Lower Social Security Benefits
Coronavirus and Your Money

Turning 60 in 2020? Expect Lower Social Security Benefits

When you file for Social Security, the amount you receive may be lower.
July 30, 2020