We are big fans of Roth accounts. As a reminder, a Roth IRA or Roth 401(k) is an account where you pay the taxes upfront, the account grows tax free, and qualified withdrawals made from the account typically come out tax free. When it comes to these accounts, time is your best friend. And who has more time than anyone else, our children and grandchildren.
We often get asked “Can I open a Roth IRA for my child?” The answer is generally yes! The biggest condition is if your child or grandchild has earned income. The IRS generally defines compensation as “what you earn from working.” 1 This can include salaries, wages, commissions, and self-employment income. Some examples are can be income from babysitting, mowing lawns, or working around a farm. However, allowances are excluded.
The funds can generally be used, tax free, for withdrawals after age 59 ½ or up to $10,000 can be pulled out for a first-time home purchase. If you have a child or grandchild that is earning a little bit of money a great way to teach them about saving and investing is through a Roth IRA. If you have any questions about a Roth IRA hit reply or give us a call.
Garrett G. Smith
Paul M. Norman
Senior Financial Advisor
1300 N 200 E #114C
Logan, UT 84341
175 Historic 25th Street
Ogden, UT 84401
Qualified Roth IRA distributions are not subject to state and local taxation in most states. Qualified Roth IRA distributions are also federally tax-free provided a Roth account has been open for at least five years and the owner has reached age 59½ or meets other requirements. Withdrawals may be subject to a 10% Federal tax penalty if distributions are taken prior to age 59½.
Wells Fargo Advisors Financial Network and Ascend Investment Partners are not tax advisors