The Gift That Keeps on Giving: Why You Should Open a Child Roth IRA Today

Ann Miller |

Investing for retirement can seem like a daunting task, especially when you're young and your future seems far away. But what if you could start building your nest egg early, with the power of compound interest working in your favor? Enter the Roth IRA, a powerful tool that can help you grow your wealth tax-free.

And the best part? You can open a Roth IRA for your child or grandchild, giving them a head start on their financial journey.

The Power of Compound Interest

Compound interest is the eighth wonder of the world. Albert Einstein called it "the most powerful force in the universe." It's the idea that your money can grow exponentially over time, earning interest on interest. The earlier you start investing, the more time your money has to compound and grow.

For example, let's say you invest $1,000 in a Roth IRA for your child when they are born. If you earn an average annual return of 7%, your child will have over $170,000 by the time they retire at age 65. And that's just from the initial $1,000!

Tax-Free Growth and Withdrawals

One of the biggest benefits of a Roth IRA is that it grows tax-free. This means you won't have to pay taxes on your contributions or earnings when you withdraw the money in retirement. This can save you a significant amount of money over time, especially if you are in a high tax bracket.

In addition to tax-free growth, qualified withdrawals from a Roth IRA are also tax-free. This means your child can access their money penalty-free for certain qualified expenses, such as first-time home purchases, higher education costs, or medical expenses.

Easy to Contribute

The annual contribution limit for a Roth IRA for 2023 is $6,000. You can contribute up to 100% of your child's earned income for the year, up to the annual limit.

A Great Way to Teach Financial Literacy

Opening a Roth IRA for your child is a great way to teach them about the importance of saving and investing. It can also help them develop good financial habits that will benefit them throughout their lives.

You can involve your child in the investment process by discussing different options with them and letting them make some decisions about where their money is invested. This can help them learn about the financial markets and how to make informed investment decisions.

Additional Benefits

  • There are no income limits for contributing to a Roth IRA for your child.
  • The investment options in your child's Roth IRA can be changed at any time.
  • Your child can contribute to their own Roth IRA once they start earning income.

The Bottom Line

Opening a child Roth IRA is one of the best things you can do for your child's financial future. It's a gift that keeps on giving, providing them with the opportunity to build a secure retirement and achieve their financial goals.

So don't wait any longer. Let us know if we can open a child Roth IRA for you today to give your child the gift of financial freedom.