Planned Manswers: Should I get my kid an IRA?
The earlier your kid starts learning about money, saving, investing and personal finance, the better. Tweet
Sure, she's cute and only a year old now. But she won't stay that way.
Follow this advice, and someday she'll be cute — and have enough to send you to Florida.
Hey PM, I’ve got a problem.
When I ask Google for this:
What I get is this:
But I don’t want 94 million results in .57 seconds; I just want you to tell me what I need to know!
1. Yes, you can open an IRA for your kid as long as he or she has some earned income, even if it’s just money from mowing lawns or baby-sitting.
Just like you, your kid can have a traditional IRA or a Roth IRA. Or both.
2. Just like you, your kid can have a traditional IRA or a Roth IRA. Or both.
3. There’s nothing special about your kid’s IRA; it’s the same kind of account that you have (you do have an IRA and a Roth, right?) as an adult IRA (which you can read about here) and basically all the same rules apply to your kid as apply to an adult with with an IRA; the one exception is that your kid’s IRA will be a custodial account because an adult must oversee the account until your kid legally becomes a legal adult.
4. Of course, you really came here to find out if you SHOULD get your kid an IRA. Our answer: Yes, absolutely. And here’s why:
- The earlier your kid starts learning about money, saving, investing and personal finance, the better. Don’t you wish someone would have done the same thing for you, when you were a kid?
- Get your kid stacking up money for retirement now to take advantage of the magical power of compound interest, which allows you (and your kid) to not only make money on your money but to also to make money on the interest that your money makes. Crazy, right? Einstein called “compound interest” the 8th wonder of the world, and Forbes sums it up as “The Life-Changing Magic Of Compound Interest.”
- Even though it’s called a “retirement” account, current rules would allow your kid to use money in his or her Roth IRA to pay many college expenses and even to fund the downpayment for his or her first home. And just in case it’s not obvious, when your kid can handle his or her own college costs and first downpayment, that takes a lot of pressure off you while you’re trying to build up money for your own damn retirement.
And these are the best places to go to open an IRA and Roth, according to Forbes and US News and Money:
|All three publishers
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