Yes, it's possible to start an IRA for your child.
Open a retirement account for your kid? Sounds crazy, but with an IRA, your child could accumulate a significant amount of money by the time they reach retirement if they start early.
There are a few options for starting an IRA for your child. In order to open a traditional or Roth IRA for your child, your son or daughter has to earn an income. So if your kid is a child actor, or pulling in a paycheck from some other source, you should consider putting a piece of their income (up to $5,000) into an IRA for them.
Another option is to contribute money to the most important thing for your child – their education. Formerly known as the Education IRA, the Coverdell Education Savings Account is designed to help you save money to pay for your kid’s education expenses. This kind of IRA can be user to pay for private school tutions and for college. This account comes with some stipulations. The beneficiary must be 18 years old or younger and the money contributed can only be used for educational purposes. Also, the total contributions a year, no matter how many contributors, must be no more than $2,000. Like the Roth IRA, this account grows tax free too.
So to answer the question, yes you can start an IRA for your child. Not only is it a good way to save up for your kid’s college fees in the future, but it’s also a good way to teach them to save up money for the future.
An IRA might teach your child the benefits of saving and investing money over long periods of time.
| Type | Today | Week Ago |
|---|---|---|
| 15 Year Fixed | 4.62%  |
4.67% |
| 30 Year Fixed | 5.15% | 5.15% |
| 1 Year ARM | 3.48% |
3.51% |
| 5/1 Year ARM | 3.62% |
3.68% |
| Type | Today | Week Ago |
|---|---|---|
| Line of Credit | 4.89%  |
4.88% |
| 10 Year Loan | 7.47% | 7.47% |
| 15 Year Loan | 7.61% |
7.60% |
| Type | Today | Week Ago |
|---|---|---|
| Interest Checking | 0.28% | 0.28% |
| Money Market/Savings | 0.38% | 0.38% |
| 12 Month CD | 1.13%  |
1.15% |
| 60 Month IRA CD | 2.40% |
2.41% |
| Type | Today | Week Ago |
|---|---|---|
| Cash Back Cards | 12.66% |
12.68% |
| No Annual Fee Cards | 12.08% |
11.97% |
| Reward Cards | 12.75% |
12.61% |
| Small Business Cards | 11.01% |
10.94% |
| Student Cards | 13.77% |
13.49% |
| Platinum Cards | 12.26% |
12.11% |
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You can also put money in a Roth IRA for a child if they earn an income mowing lawns or babysitting. Just keep excellent records. Maxing out a Roth IRA for a child while still in high school or even middle school can translate into millions of additional nest egg savings in retirement thanks to extra years of compounding interest.
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A Roth IRA is probably a good choice, if the child has any income (and it needs to be "reportable" to the IRS) and you don't have or want to put aside any sizeable amount of money. The limit in 2009-10 is $5000 in each year.
A coverdell as the author posts is an ok idea, again, it's limited to $5k, and then can only be used for education. So, a Roth IRA is better in that the money can grow tax deferred until the owner turns 70.5 and the contributions can be withdrawn tax-free anytime, and tax-free for educational purposes.
An even better idea is a 529 plan, where any individual can contribute up to $13,000 in any single allowing grow tax deferred growth, and tax-free withdrawals for education. (and, you can also "prefund" a 529 plan -- that is, put up to 5yrs of contributions into it in one year, then not contribute the next 4). So, not only are the limits higher, but again ANYONE can contribute to their limit amount ... both parents, grandparents, uncles/aunts, employers, friends.
So, here's the practicality. If you have a baby, you say "gee i should save for schooling". Baby's can't work so you can't put it in an IRA. Coverdell's are fine, for all those cash baby gifts. But, $5000 x 18yrs = 90,000. That's 2yrs of school at TODAYS dollars, if you began saving when Junior is a newborn. in 18yrs, at the rate of college costs growth and inflation, college is going to cost over $100k per year. So, practically speaking, if you max-ed out your limit in coverdell or ira's, you're not going to have saved enough for college, unless you also save in a 529 plan.
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