IRAs for Kids
If your child has earned income from outside the household, such as from a summer job or babysitting, consider opening an Individual Retirement Account (IRA) in your child's name. For 2016, your child can contribute $5,500 or his or her earned income, whichever is less, to an IRA.
Just how important is it to start an IRA for your child now? Suppose your 15-year-old daughter saves $800 from babysitting and purchases a Roth IRA. If she makes no additional contributions and the funds grow at 8% annually, the account will grow to over $37,000 by the time she reaches age 65, and withdrawals will be tax free. Or, suppose your son opens a Roth IRA with $2,000 at age 15 and makes annual deposits of $2,000 for the next 10 years. The value of his tax-free account at age 65 will be about $700,000 if the annual growth rate is 8%.*
*The hypothetical examples are for illustrative purposes only. They are not intended to reflect an actual security’s performance. Investments involve risk and may result in a profit or a loss. Seeking higher rates of return involves higher risks.