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ECS ARTICLES & NEWS

Building for the Future: Introducing Custodial Roth IRAs for Children and Teens



One effective wealth building tool to consider is a custodial Roth IRA, offering tax advantages and long-term growth potential. Let's explore why a custodial Roth IRA might be the right choice for your child:

 

Understanding Custodial Roth IRAs:

  • A custodial Roth IRA is owned by a minor but controlled and funded by an adult custodian until the child reaches legal adulthood.

  • Contributions can be withdrawn tax- and penalty-free at any time, offering flexibility for various financial needs.

  • There's no age limit for opening a custodial Roth IRA; eligibility is based on the child's earned income.

 

How to Open a Custodial Roth IRA:

  • Choose a provider that offers custodial Roth accounts and consider factors like fund fees.

  • The account setup process is simple and can be completed online, requiring basic personal information for both the child and the custodian.

 

5 Reasons Why a Roth IRA Can Be Right for Minors:

  1. Flexibility of Withdrawals: Contributions can be withdrawn at any time without penalty, providing access to funds for various purposes.

  2. Long-Term Growth Potential: Starting early allows for decades of tax-free investment growth through compound interest.

  3. Investing vs. Saving: Unlike traditional savings accounts, a Roth IRA enables children to invest in diversified portfolios for potentially higher returns.

  4. Tax Advantages: Qualified distributions in retirement are tax-free, and children typically have low income tax rates, maximizing tax benefits.

  5. Multiple Uses: While primarily a retirement account, Roth IRAs offer flexibility for first-home purchases and education expenses.

 

Considerations for Parents:

  • Evaluate your child's earned income eligibility and long-term financial goals.

  • Encourage responsible financial habits and investment education.

  • Consult with financial advisors to ensure the custodial Roth IRA aligns with your overall financial plan.

 

 

If you have any questions setting up ROTH IRA accounts, or need personalized assistance, please do not hesitate to reach out.

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