Practical Money Skills: Roth IRAs for Grandchildren by Jason Alderman

Starting Roth IRAs for Your Grandkids

By Jason Alderman

Many grandparents go above and beyond to offer financial help to adult children and grandchildren. If you’re seeking to contribute to your grandkids’ financial future, one option might involve opening a custodial Roth IRA (http://www.irs.gov/Retirement-Plans/Roth-IRAs) on your grandchild’s behalf as soon as he or she starts reporting earned income.

While grandparents often find 529 college savings plans advantageous for their personal estate planning as well as supporting their grandchild’s educational future, custodial Roth IRAs (http://www.irs.gov/Retirement-Plans/Roth-IRAs) may allow for more flexibility depending on the child’s future needs. For example, a young adult may use tax-free Roth IRA proceeds to fund education expenses not covered by savings or a down payment on a first home. Roth IRAs may also be a useful and collaborative savings tool for important expenses young adults have, such as continuing education or a down payment on a first home.

Unlike traditional IRAs, Roth IRAs are funded with after-tax dollars. That means the account holder doesn’t get a tax break at the time of initial or successive deposits, but the money grows tax-free and can be withdrawn tax-free – a benefit for a grandchild who may need a substantial sum in the years to come.

 

Read more about the benefits of starting a Roth IRA for your grandchildren at: http://www.practicalmoneyskills.com/personalfinance/experts/practicalmoneymatters/columns_2015/0206_IRAs.php

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