Updated: Sep 5
All you need to know about opening a Kiddie Roth IRA for your child
I established a Custodial Roth IRA for my oldest child as soon as he began to have earned income at the age of 15. It was easier than setting up a checking account. To remain unbiased, I will not share with whom I opened the account. However, my criteria are as follows:
Low/no transaction fees
Low/no investing fees
Index funds that represent the broad stock market
I decided to give him a match, up to a certain amount. The total amount contributed cannot be greater than the IRS annual maximum contribution or the total amount of earned income, whichever is less. It was not hard to convince him after showing him the magic of compounding.
In each case, the investment earns 7%, which is just below the market average, and the total amount invested is $150,000. The difference is the timing of the investment.
$250 invested monthly from ages 15-65.
Balance at the age of 65: $1,219,616.25
$500 invested monthly from ages 40-65.
Balance at the age of 65: $379,499.65
The advantages of opening a Kiddie Roth IRA are not limited to the long-term investing potential. Low to moderate-income families can use Kiddie Roth IRAs to support the opportunity to receive need-based college aid. I cover this and all the other topics seen bulleted in the two videos linked below.
Javon Colbert is a past student of mine who was featured in Money Magazine as a teen investor. He is an inspiration to other teens who may have doubts about whether they can begin investing for retirement. Watch as he shares the challenges he overcame to open a Roth IRA as a teen.
If you found this post helpful, check out our longer post Money Lessons for Kids: Investing which includes resources you can use to teach your child how to invest.
You can rely on the IRS page for Roth IRAs for any additional details.
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