Notes to Know: Minor Roth IRAs

Updated: Jun 10


"If I'd have had more time, I'd have written a shorter letter" ~Blaise Pascal


This note is excerpted and edited from an article by the web service

Nerdwallet. The complete article can be found here.


Roth IRAs are a great retirement tool, particularly in the post SECURE Act

world. They are extra powerful for children who don’t have a lot of taxable

income today (as they don’t provide a current income deduction; however, the

growth in these accounts is never taxed, assuming the child waits until

retirement age to withdraw the funds (currently defined as 59 ½). That is an

awful lot of tax –free compounding for a young person!


The Basics:

  • There are no age restrictions. Kids of any age can contribute to a minor Roth IRA if they are under 18. NOTE: Various custodial firms do have different rules regarding availability and age, so check with your advisor.

  • A parent or adult will need to open the account for the child.

  • The child must have earned income. This may be earned from a W-2 job, or from self-employment such as babysitting, yard work, etc.

  • The child can contribute each year to the Roth up to 100% of their earned income or $6,000 annually, whichever is less.


Why a Roth:

  • In most cases, the child's overall income tax bracket is not high enough to benefit from the deductibility of the pre-tax contribution.

  • Roth's work best when your current tax bracket is low and your time horizon is long, making them an excellent option for kids.

  • Roth IRAs offer several other withdrawal options, which may prove valuable over the course of the investment period. Consult your advisor for details.

In looking at a young person with a time horizon of say, 50 years until retirement

(keeping in mind that life spans and typical retirement ages are widely expected to

increase over that time frame), saving a couple of thousand dollars starting at age 15,

saving $100/month, and compounding at a reasonable rate of return, your child’s

investment could grow to… I don’t even want to say. I’m sure my Compliance

Department would have a heart attack if I started projecting returns in here.

However, if you’re interested to play with possibilities yourself, try exploring the

compound interest calculator at Investor.gov, a service of the U.S. Securities and

Exchange Commission, found here.


IN SHORT, Minor Roth IRAs are a powerful tool for your child to start learning

financial responsibility and to get them planning for their own personal financial

success. Contact your advisor to get started today!

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