The rules of Roth IRAs for minors The child must have earned income. If a child has earned income, they can contribute to a Roth IRA or even open a Gold and Silver IRA Custodians account. The IRS defines earned income as taxable income and salary, money earned from a W-2 job or self-employment, such as taking care of children or walking dogs. To begin with, a Roth IRA is a special retirement account that allows participants to receive tax-free income during retirement. There are no age restrictions, so a child can have a Roth IRA account and get a big advantage in both their retirement savings and their wealth-building goals.
One way to do this is to establish a Roth IRA with custody, or what Fidelity is known as a Roth IRA for children and, more generally, as a Roth IRA for minors. As long as your child meets the earned income requirement, you or anyone else can make the contribution, or part of it, on your behalf. Profits from investments in the account can be withdrawn without paying any federal taxes (and, generally, also state and local taxes) once the account owner turns 59 and a half years old, or due to disability or death. For a self-employed person or a partner or member of a transfer business, compensation is the person's net earnings for their business, minus any deductions allowed for contributions made to retirement plans on behalf of the individual and are further reduced by 50% of the individual's self-employment taxes.
For people who work for an employer, the compensation that is eligible to fund a Roth IRA includes salaries, salaries, commissions, bonuses, and other amounts paid to the person for the services they provide. Children of any age can contribute to an IRA as long as they have earned income from a job, either from an employer (such as a newspaper or a lifeguard) or from a small business of their own. A Roth IRA for children offers all the benefits of a regular Roth IRA, but it is aimed at children under 18. Here's why you should think beyond regular savings accounts and savings bonds and consider opening a Roth IRA for your child. The important thing to remember is that your child must have earned income from work during the year in which a contribution is made.
As the custodian of the account, you will control the IRA funds and make all investment decisions until your child reaches the age of majority. The information contained here is general and educational in nature and should not be considered legal or tax advice. Earned income, according to the Internal Revenue Service, is money that can come from salaries, tips, bonuses, commissions and self-employment. And, as mentioned earlier, you won't get any tax deduction for the contribution, although you may be able to apply for a tax credit to save 10%, 20%, or 50% of the deposit, depending on your income and living situation.
While you might see brokers touting a Roth IRA for children (like Fidelity Investments does), there's nothing special about the way a child's IRA works, at least when it comes to the IRS.
