Roth Individual Retirement Accounts (Roth IRAs) are designed to be owned by a single person. However, parents can open a Roth IRA with custody on behalf of a minor. Once the child becomes an adult, they assume ownership of the account. Next, we'll look at two types of IRAs for children, the benefits offered by these tax-advantaged investment instruments, and how to open and make contributions to an IRA for children.
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. In addition, when it's time to take advantage of your retirement age savings, certain eligible distributions from a Roth IRA will be tax-exempt, unlike distributions from a traditional IRA. 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. In general, the Roth IRA is the preferred IRA for children who now have limited incomes, as it is recommended for those who are likely to be in a higher tax bracket in the future.
In addition, at the time of retirement, the account owner must have had a Roth IRA open for at least 5 years, counting from the start of the first calendar year in which a Roth IRA was opened. If you're ready to create a Roth IRA for a child, the first step is to contact a brokerage agency that offers Roth IRAs for minors. Roth IRA providers usually require an adult to open and manage a Roth IRA with custody on behalf of a child. Convincing a child to hand over their hard-earned money to invest in a Roth IRA can be difficult, but remember that as long as the child has earned income from work to be able to receive Roth IRA contributions, it doesn't matter where the contributions come from.