Custodial IRA: A Guide to Retirement Savings for Children

A custodial IRA is a type of retirement account that you can set up for your child. One of the biggest advantages that young people have is time. By getting started investing for their retirement at an early age, they will have compound interest on their side. One way that you can do this is to set up a custodial IRA for your child. If your child works and earns money before they are an adult, they can put some of this money into a custodial IRA. 

How They Work

Until your child reaches the age of adulthood, you are going to be the administrator of the account for them. They can deposit as much as $5000 per year into the IRA. At that point, you and your child will be able to choose investments to put the money into. The money that you earn from interest is not going to be taxable. It will be allowed to go back into the account and grow tax-free. Once your child reaches adulthood, they will take over ownership of the IRA and it will then be treated normally as a traditional IRA.

Which types of IRA accounts support custodial accounts?

Custodial accounts are a type of retirement account that can be set up for a child. You can actually set up a traditional IRA or a Roth IRA for your child. In order for you to set up this type of account, the child has to earn money in some way and it has to be documented. Even though the child has to earn money, not all of the money in the account has to be from his or her work. You could also choose to make contributions to the account in order to help the child save for retirement.