Why You Should Open a Roth IRA for Your Child
You can give your child a head start in life by opening an individual retirement account (IRA) for them. Allowing it to build interest for decades enables it to grow much more than if you wait until the child is older. Custodial Roth IRAs have some rules that must be followed, but it has many benefits that will make it worthwhile.
Custodial Roth IRAs, like regular Roth IRAs, are designed to save money for retirement. The interest grows tax-free, and all legitimate withdrawals are also tax-free. They do not provide any tax deductions because the contributions use after-tax money.
The Basic Requirements
There are two basic requirements for opening a custodial Roth IRA for minors. The first rule is that the child must have their own taxable income. TheBalanceMoney says that the Internal Revenue Service (IRS) defines taxable income as wages, commissions, salaries, bonuses, tips, or self-employment income. The child’s income needs to be reported on tax forms….