How can I start an IRA for my child?
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
In order for an individual, minor or not, to contribute to an IRA, they need to have earned income. The definition of earned income is "income derived from active participation in a trade or business, including wages, salary, tips, commissions and bonuses." Once they have earned income, they may be eligible to open and contribute to an IRA (Roth or traditional). You can go to any number of custodians to open the IRA. Make sure to consult with your tax advisor before you pull the trigger on this because the rules surrounding IRAs are complicated.
As all the other answers have indicated, an IRA for a child would need to be funded with income earned by the child. Alternatively, you could open an investment account for your child using the Uniform Transfer to Minors Act account (or UTMA). This is the type of account a parent would set up for a child.
ABSOLUTELY! Good for you for getting the ball rolling.
The main thing to set up an IRA for a child is they have to have documented earned income (see IRS definition here). Also, the contribution limit is just like one for an adult. The contribution limit for 2016 is $5,500, but can't exceed the amount of earned income the child had (ie... if the child had earned income of $1,000, then the max contribution would be $1,000).
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Please keep in mind that while anyone can open an IRA; your child needs to have earned income in order to contribute to an IRA. If your child is working, then you could contribute up to the amount they earned (capped at $5,500/year).