Kids Need IRAs, Too

Physician's Money DigestAugust31 2004
Volume 11
Issue 16

If your child makes $3000 or morewith a summer job, you may want to takethat money and put it in an IRA. If youinvest it in a traditional IRA, the contributionsare tax-deductible. But since yourchild probably won't have to pay taxesanyway, you may be better off with aRoth IRA, where withdrawals down theroad may be tax-free.

Good news:

But would Johnny rather spend hishard-earned pay on clothes? You're entitled to put up the cash for himas a gift, as long as he has earned income.What's the big deal? If Johnny were tokeep up his Roth IRA contributions forthe rest of his working life and earn a reasonablerate of return, his account couldbe worth in excess of $2 million in tax-freemoney by the time he retires.

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