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.
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