How to Open a Roth IRA for Children
A Roth IRA is a tax-free savings account established by the Taxpayer Relief Act of 1997. There are no age limits on who can open a Roth IRA. The requirements are specific to the income limitations. As a result, if you have a child who has earned income, you can open a Roth IRA for him to get a head start on retirement savings.
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Instructions
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File individual tax returns for your child based on her income. There is a gray line on what is considered taxable income, with some people including household chores. Filing a tax return helps prevent any ambiguity and possible questioning by the Internal Revenue Service.
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Confirm your child's adjusted gross income so it meets the IRS limits for contributions. To contribute to a Roth IRA, you child must make less than $105,000 to make a maximum contribution and no more than $120,000 annually. This may seem excessive, but there are children who make this type of money through acting, modeling or other work.
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Open a Roth IRA at a custodian you trust. This may be the bank or brokerage firm that maintains your personal IRAs and investments, or any place you choose. Your child must sign the account agreement.
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Fund the account with a contribution of up to $5,000. This is the maximum annual contribution. Your child must have an income equal to or greater than the amount she contributes.
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Tips & Warnings
Unlike other financial accounts for minors, the child owns the Roth IRA, with the IRA administrator as the only custodian on the account. This means your child is in control of the account, not you.
References
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