My 16-year-old son worked as a camp counselor last summer. Can he contribute to a Roth IRA?
Yes. There’s no minimum age requirement to contribute to a Roth IRA; your child just needs to have earned income from a job. And it’s a great idea to start making Roth contributions as early as possible and start building a tax-free stash of money for the future. Your son will be able to withdraw the contributions anytime without taxes or penalties (for college or a down payment on a house, for example), and he can tap earnings tax-free after age 59½.
Your son can contribute up to the amount of money he earned from his job in 2015, up to a maximum of $5,500. And he doesn’t have to use all of his own earnings to contribute to the account; you can give him the money for the contributions.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Not all IRA administrators offer custodial Roth IRAs (Roths that minors can open), but many do, and they usually offer the same investing options as for any IRA. TD Ameritrade, for example, has no investing minimums or annual fees for its IRAs. Fidelity has no minimum or annual fees for custodial Roth IRAs. Charles Schwab requires $100 to open a custodial Roth IRA, but it charges no annual or maintenance fees.
You may need to take a few extra steps to open the account for the minor. With Fidelity, for example, you’ll fill out a similar form as for any IRA, but two names need to be on the account – the minor and an adult (who can be any adult, not only a parent or grandparent). The adult maintains control of the account and is the sole recipient of account statements and communications while the child is still a minor (usually until the child is age 18 or 21), says Fidelity spokeswoman Kim Reingold.
You still have until April 18, 2016, to make IRA contributions for 2015. But you’ll have to act quickly. Some brokerage firms have cutoff times before the end of the day on April 18 to allow for processing. With TD Ameritrade, for example, checks must be postmarked by April 18, and ACH (electronic transfer) and internal transfer requests must be entered before noon central time on April 18, says Matt Sadowsky, director of retirement and annuities for TD Ameritrade. You may also be able to make contributions at a local branch of your brokerage firm, bank or fund company.
If your son earns money from a job again this summer, he’ll be able to contribute up to $5,500 (or the amount of his earned income) to a Roth for 2016, too. See Retirement Plan Contribution Limits for 2016 for more information.
For more information about the benefits of a Roth IRA, see Reap the Rewards of a Roth IRA.
-
Winners and Losers of Fed Rate CutsNavigating interest-rate changes can seem daunting, but these areas of the fixed-income market could perform better (or worse) than others.
-
What You Should Know About Spousal IRAsWithout spousal IRAs, you would need an earned income to contribute to your retirement account.
-
Getting Out of an RMD Penaltyretirement When your brokerage firm miscalculates your required minimum distributions, you have recourse.
-
Borrowers Get More Time to Repay 401(k) Loans
retirement If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
-
It’s Not Too Late to Boost Retirement Savings for 2018
retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
-
How to Correct a Mistake on Your RMDs from IRAsretirement If you didn't take out the correct required minimum distribution because your brokerage firm made a mistake, the IRS may show some leniency.
-
Making the Most of a Health Savings Account Once You Turn Age 65
Making Your Money Last You’ll face a stiff penalty and taxes if you tap your health savings account for non-medical expenses before the age of 65. After that, the rules change.
-
Reporting Charitable IRA Distributions on Tax Returns Can Be Confusing
IRAs Taxpayers need to be careful when reporting charitable gifts from their IRA on their tax returns, or they may end up overpaying Uncle Sam.
-
Make the Most of the New Military Retirement Plan
retirement The government is offering a new retirement option so that service members who leave the military before qualifying for a pension can still receive some benefits.
-
How Changes in Income Affect Medicare Premiums
Medicare Medicare beneficiaries can see their premiums go up if their income rises, although for some that increase will be only temporary.
