Our Child's Roth IRA

by Michelle Vandepas | More from this Blogger

We are thinking of opening a Roth IRA for our three-year-old child.

She will build it slowly, over the next fifteen years (till she is eighteen), and we'll watch it grow with her.

Hubby, (he is the obsessive one that does our budget weekly and checks it daily), will guide her as she learns about her financial wealth.

We choose a Roth IRA as she can contribute into it herself with her own earnings.

Three cool things about why we choose a Roth IRA:

• You can use the cash from your Roth IRA to help you purchase your first home!

  A withdrawal of up to $10,000 tax free, is available toward a home purchase. According to the IRS tax code to put toward a down payment on a first home you must have had the account open five years.

• You can withdraw the money for college. You'll owe taxes, but not an early penalty for taking it out early.

• The money you contributed, (not the interest or additional earned income) is available to you at any time - and you do not have to replace it as you do with a 401K. If she needs the cash, she can get to it. (However, I hope she'll have an emergency fund)

A few basic rules regarding a Roth:

You must have income to contribute. I am hoping our daughter gets a few modeling gigs showing off her cute curly hair, and we can put her earnings into this account.

No income, no Roth.

She can't put in more than she makes. If she earns $2,000.00 next year modeling, we can't match it, or give her extra. $2,000.00 is the limit.

If she hits the big time and gets a cover on a parenting magazine which then is licensed around the world, and suddenly she's rich, she can only have a Roth if she earns less than $100,000.00 per year. That goes for you and me too.

Roth IRA can be a great way to save. The actual numbers may vary a bit depending upon your family situation. Always check with a financial adviser before making a final decision for your family.

Read about other types of retirement accounts here.

Participate in the Families.com Forum Discussion on Roth IRAs.

Learn more about Michelle Vandepas

In a previous life, Michelle was president of a medical manufacturing company, and then in private practice as a holistic business consultant.

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