Why Your Kid Needs a Roth IRA - Blog | Palma Financial

IRA for Kids: No age restrictions. That’s why your kid needs a Roth IRA

Having your kids contribute to their own IRA is a great idea, and it should be a tradition.

Here’s what you need to know about IRAs for kids.

Roth IRA Contribution Basics

The only federal-income-tax-law requirement for a child to make an annual Roth IRA contribution is to have enough earned income during the year to cover the contribution. Age is completely irrelevant.

So if a child earns some cash from a summer job or part-time work after school, he or she is entitled to make a Roth contribution for that year.

For both the 2021 and 2022 tax years, your working child can contribute the lesser of:

  • his or her earned income for the year, or
  • $6,000.

While the same $6,000 contribution limit applies equally to Roth IRAs and traditional IRAs, the Roth option is usually better for kids.

Key point. A contribution for your child’s 2021 tax year can be made as late as April 15, 2022. So, there’s still time for that.

By making Roth contributions for a few years during the teenage years, your kid can potentially accumulate quite a bit of money by retirement age.

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