Should Your Kids Have A Roth IRA? How A Custodial IRA Works.

Start your kids on the right financial foot by saving for retirement early with a Roth IRA. If your child has earned income, perhaps from a part-time job, they can contribute to a Roth IRA. Even better: the child or teen doesn’t have to part with their hard-earned cash. IRA contributions can come from a parent, grandparent, relative…anyone. While you could open a regular custodial IRA and make pre-tax contributions, since most minors don’t have meaningful taxable income, a Roth IRA is almost always a better savings vehicle.

How A Custodial IRA Works

A custodial Roth IRA is a regular Roth IRA account, but for the benefit of a minor. Parents can open an account with any qualified financial institution. The child’s Roth IRA stays in the care of the parent (the custodian) who will direct contributions and investments for the benefit of the child or teen.