Roth IRAs for Your Children and Grandchildren

I’ve long recommended that people consider contributing to Roth IRAs for their children and grandchildren to the extent that the youngsters have earned income. It’s a great way to give and establish a foundation for them, and also to help them learn about money management. Here’s an article that explains the strategy in detail.

Here’s why this works. Once a child has earned income, they’re eligible to open an Individual Retirement Account. A Roth IRA is usually the better choice for young savers because they’ll get decades of tax-free growth, and in a pinch, they can take out the contributions before retirement with no tax or penalty-hit. Note that IRAs for those under 18 or 21 (it varies by state) must be opened by an adult as a custodial account. So, you sign on and act as custodian, and then, when they’re of legal age, they’ll have full access to the money.