🔎 Investing in a retirement account for your child or teen might sound crazy, but it’s one of the easiest ways to transfer and build generational wealth.

While money in a Roth IRA is most easily withdrawn once you’re age 59½, contributions to a Roth IRA can be withdrawn at any time without penalties.

If your child is able to contribute to a Roth IRA in their teen and college years, they’ll have millions in tax-free income in retirement if they leave that money untouched.

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But, What Is a Roth IRA for Kids?

A Roth IRA for kids is formally called a custodial Roth IRA, in which an adult, usually a parent, opens and manages for a child, who gets full control of the account once they’re 18 in most states.

The money in a custodial account belongs to the child at all times. With a custodial Roth IRA, the tricky part is that you can only contribute to it if your child finds a way to earn money.

If your child earns income in their younger years, or if you want them to build life skills with a summer job as teens, you’ll be able to invest up to the annual contribution limit, $6,500 in 2023, of that earned income each year into their Roth IRA.

📌 Remember: The kid can take out the money for medical expenses for college or to buy the first house, so this child would be in a much more advantageous situation, because they will have money to use on these options, and at the same time, to be able to withdraw without paying taxes.

Planning The Future

All money in the account grows tax free and can be withdrawn tax free at age 59½, and contributions can be withdrawn without penalty at any time. Gains can only be withdrawn for certain circumstances or in retirement. Otherwise, they’ll be subject to a 10% penalty plus any applicable income taxes.

🔊 If a child is able to contribute $24,000 to a Roth IRA by the time they turn 18, it can grow to a shocking amount when they reach retirement age.

Important: if you are an entrepreneur, this can be a way for you to reduce or change your tax effect at the end of the year, and you can pay a little less taxes and at the same time, your child is doing a productive activity with investing and saving for his future.

📈 If you are interested in opening a Roth IRA account to start planning for your children’s future, do not hesitate to contact us for support. At Wave Tax we help you to plan your finances and the finances of your loved ones. Contact us at info@wavetax.us ❤