A:

The Roth IRA is hands-down the most attractive retirement plan available for people with at least 15 or more years until retirement, since it provides tax-free withdrawals if you wait to withdraw funds until after age 59.5. The smart thing to do is to start contributions while you or your children are very young, which allows compounded growth for possibly another 30-40 years before you/they would consider using the funds in retirement. The tricky part is convincing your teenagers or young adults to start saving early and meeting the requirements of earned income to qualify for IRA contributions.

So, how can you start a Roth IRA for your teenage daughter if she doesn't have a job with earned income? One option is to hire her at home within the family business (self-employed), as a file clerk or marketing assistant, for example. In this scenario, you can benefit twofold by receiving a deduction from business income, and you can make a contribution to your child's retirement. If you're not self-employed, you can still hire your child and pay them via W-2 or 1099-MISC income for cleaning the house or doing other odd jobs around the house - just make sure you document everything carefully, and put the pay directly into the Roth IRA. Since the child is working for the parents at home, no child labor laws are in violation.

Once your child starts gainful employment outside of the home or summer work between school breaks, you can still gift an amount equal to the Roth IRA contribution to the child and deposit this amount into a Roth account for them just as long as their compensation is equal to or greater than the gift.

For additional reading, check out Roth Or Traditional IRA...Which Is The Better Choice?and Roth IRA: Back To Basics.

This question was answered by Steven Merkel

RELATED FAQS
  1. Can my child have an IRA/Roth IRA?

    Explore the possibilities for establishing a traditional or Roth IRA for a minor child, and learn the necessary requirements, ... Read Answer >>
  2. What are the advantages of a Roth IRA?

    Contribute to your Roth IRA and gain the advantage of it free of taxes and penalties. Make approved early withdrawals to ... Read Answer >>
  3. Can I still contribute to my Roth IRA if my spouse earns over the requirement cap?

    My spouse makes over the amount allowed to contribute to a Roth IRA. However, I do not. Is it possible... Read Answer >>
  4. Can an individual contribute to both a Roth IRA and a Traditional IRA in the same ...

    Yes, an individual can contribute to both a Roth IRA and a Traditional IRA in the same year. The total contribution into ... Read Answer >>
  5. Can I close my existing Roth IRA and invest in a new Roth IRA at a different financial ...

    If If you withdraw your Roth IRA contribution, the amount will be tax and penalty free. If your initial contribution accrued ... Read Answer >>
  6. Can I contribute to a Roth IRA and still participate in my employer-sponsored retirement ...

    Find out the rules and limits on contributing to both a Roth IRA and employer-sponsored retirement plan. Read Answer >>
Related Articles
  1. Retirement

    In Your 20s? Reasons To Get A Roth IRA Now

    There are strong reasons to put retirement savings into a Roth IRA now, while time is on your side, your salary hasn't peaked, and the rules favor you.
  2. Options & Futures

    5 Secrets You Didn't Know About Roth IRAs

    Between its generous tax benefits at retirement and no required minimum distributions, a Roth IRA is well worth considering if you're eligible to have one.
  3. Retirement

    Funding Your IRA vs. Your Roth IRA, Which First?

    The answer depends on where you are in your career and personal life each year. Here are some scenarios and rules to think about.
  4. Retirement

    Roth 401(k) Vs. Roth IRA: Which One Is Better?

    It all depends on your age, your income - and your plans for your retirement nest egg.
  5. Retirement

    6 Reasons Not to Recharacterize Your Roth IRA

    If you're thinking of recharacterizing your Roth IRA into a traditional IRA account, here are six compelling reasons why you should reconsider.
  6. Retirement

    Roth IRAs Tutorial

    This comprehensive guide goes through what a Roth IRA is and how to set one up, contribute to it and withdraw from it.
  7. Retirement

    Don't Make These Top 10 Mistakes On Your Roth IRA

    Don't lose out on the benefits of a Roth by contributing too much, breaking rollover rules or making other avoidable errors.
  8. Retirement

    Roth IRA Contribution Rules: The Basics

    What you need to know about Roth IRA contributions – from eligibility to dollar limits, deadlines to tax breaks.
  9. Financial Advisors

    IRAs: Top Things You Need to Know About Them

    By understanding the major rules for both traditional and Roth IRAs, you'll be prepared to enjoy the benefits of these investment opportunities.
  10. Savings

    Why Now Is The Time For A Roth IRA

    Legislative changes in recent years make Roth IRAs worth a second look.
RELATED TERMS
  1. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  2. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  3. Ordering Rules

    The order in which Roth IRA assets are distributed. Assets are ...
  4. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
  5. Roth 401(k)

    An employer-sponsored investment savings account that is funded ...
  6. IRS Publication 590: Individual Retirement Arrangements (IRAs)

    A document published by the Internal Revenue Service (IRS) that ...
Trading Center