There is no minimum age to open a Roth IRA account. All your child needs is earned income, either from a summer job or from self-employment.
The maximum contribution to a Roth IRA for 2015 is $5,500. Your child can contribute less and you can provide some or all of the cash, up to the amount of your child’s earned income.
Your child won’t receive a federal tax deduction for a Roth IRA contribution – and will pay no federal income tax on qualified distributions taken after age 59½.
You can continue to claim your child on your tax return as a dependent. Your child is also allowed a federal standard deduction of $6,300 for 2015, which means the first $6,300 of earned income is income-tax free.
If you own a business and can employ your child, you can benefit from additional tax savings, including a payroll deduction for your business. In addition, depending on how your business is organized, you may not have to pay federal payroll taxes such as FICA, Medicare and unemployment. Remember, your child must perform real services and the wages can’t be excessive.
An early Roth IRA withdrawal could affect your child’s college financial aid. Your child can take withdrawals from a Roth penalty-free to pay for college costs. But those withdrawals generally count as income when applying for financial aid.
Are you interested in learning more? Give us a call. We’ll help you get started on saving for your child’s future.