Can You Invest in a Roth IRA for Your Grandchildren?


Quick Answer

Grandparents can invest in Roth IRAs for their grandchildren as long as the children have an earned income and the accounts are in the grandchildren's names. Brokerage firms have their own rules about whether grandparents can open the accounts or whether the parents must file the paperwork.

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Full Answer

To have a Roth IRA, a child must have some type of earned income, even if it's from small jobs such as babysitting or mowing lawns. Federal law dictates that the maximum annual IRA contribution must be less than the amount of money the individual earned that year or less than the federal limit, which changes from year to year. Grandparents who wish to contribute to Roth IRAs for their grandchildren often allow the children to keep the money they earn at their own jobs, and then the grandparents contribute that same amount to the IRA. As an example, if a grandchild earns $2,000 a year from babysitting jobs, grandparents can contribute $2,000 of their money to the account.

Roth IRAs that are opened for children are subject to the same laws as other IRAs. Account holders must leave all contributions and interest in the IRA until they are 59 1/2; early withdrawals incur a penalty.

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