It's never too soon to start planning for the future, especially when it comes to opening an IRA for your child. A Roth IRA is ideal for minors because unlike a traditional IRA there is no upfront tax deduction, so it provides tax-free retirement income. There is no minimum age requirement to set up a Roth IRA for a minor, as long as the child has an earned income. This could include jobs such as mowing the neighbor's lawn, walking dogs or delivering newspapers.
Home Purchase
The contributions made to a Roth IRA during childhood can help your child tuck money away for long term goals, such as making a down payment on a home. According to Kiplinger.com, up to $10,000 of Roth funds that have been accumulated for at least five years can be taken out without being subject to tax or penalty if the money is used to purchase a first home.
Estate Planning
Another advantage of opening a Roth IRA for your child is for estate planning purposes. You are allowed to deposit small amounts of your savings into your child's account. This money can accumulate tax-free for decades. If you were to make a $4,000 deposit when your child is 16, it be worth $200,000 with a 10-percent return when he reaches retirement age.
Retirement
When you start to contribute to Roth IRA early in life, you have a number of decades to build a plentiful nest egg for the golden years. For example, if a 12 year old invests $4,000 in a Roth IRA, she would accumulate in excess of $3.6 million tax-free dollars by time she retires if her investment earns 8 percent annually.
College Expenses
Once your child turns 18, he is free to withdraw his Roth IRA contributions with the consent of a parent or guardian. He may choose to use a portion of the funds to help pay for college tuition. However, since he will have complete say over how the money is spent, he could just as easily choose to purchase a sports car or travel to a foreign destination.
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