Can teenagers open a Roth IRA? Yes they can. In this video we'll explore how and why investing in a Roth IRA can be extremely powerful for kids.
// TIMESTAMPS:
00:00 - Intro
00:08 - What Is a Roth IRA?
00:25 - Why Should a Teenager Be Interested in a Roth IRA?
02:43 - Roth IRA Income and Contribution Limits
02:59 - How To Open a Roth IRA for Kids
// SUMMARY:
Retirement is probably the last thing on a teenager's mind. Why would they be interested in opening a Roth IRA?
There is no age requirement to open a Roth IRA. Earned income is the only requirement. That summer job babysitting, lifeguarding, or mowing lawns makes them eligible for a Roth IRA.
An adult can contribute to their child's Roth IRA, provided the child has earned income in that year equal to or greater than the amount of those contributions.
Another reason the Roth IRA can be particularly powerful for a teenager is because they might easily have a higher tax rate in retirement, as most teens pay little to no income tax. With the Roth IRA, their withdrawals in retirement are tax-free.
Custodial taxable brokerage accounts also exist, but the Roth won't impact the teenager's eligibility for financial aid.
Teenagers usually don't have extremely high incomes, but it's worth noting that there are income and contribution limits.
To open a Roth IRA for kids, an adult must open what's called a Custodial IRA if the child is a minor (usually under the age of 18 in the U.S.)
This account is functionally the same as a “regular” Roth IRA except the adult controls the assets until the teenager reaches the age of majority. At that point, the account belongs to the child and they can continue to contribute to it.
Use this opportunity to make this account part of a larger conversation with your child about basic financial literacy - goals, budgeting, managing expenses, having an emergency fund, etc. This will set her up for financial success more than you may realize, and while she may think those topics are boring at the time, she'll be thankful for those conversations in the future.
If she expresses interest, this also opens the door for discussions about specific investing concepts like diversification, the folly of market timing, and risk. This will also prepare her to take the reins on the account when she is no longer a minor.
Most brokers (like Vanguard, Schwab, and Fidelity) offer Custodial IRAs, but not all of them. I went into the specifics of the Roth IRA in a bit more detail in this video here: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-d6HyWMdq__o.html
Does your kid have a Roth IRA? Are you thinking about opening a Custodial IRA for them? Let me know in the comments.
Read the blog post here: www.optimizedportfolio.com/kids-roth-ira/
#custodialira #rothira #investingforbeginners
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31 мар 2024
