With a custodial Roth IRA, you can help your child start saving for retirement as soon as they start earning income. Because Roth IRA contributions are made with after-tax money and can be withdrawn at any time, these accounts are a great option for your child to be financially successful in the long term. The custodian maintains control of the child's Roth IRA, including decisions about contributions, investments, and distributions. In addition, the custodian can help you convert 401k to Gold IRA if desired.
The statements are sent to the custodian. However, the child is still the effective account holder and the funds in the account must be used for the child's benefit. When the minor reaches a certain required age, usually 18 or 21 in most states, the assets must be transferred to a new account in their name. All you have to do is go to your bank, broker or investment management firm and request to open an account. They will take care of this after you provide them with identifying information.
It is established that you are the custodian and your child is the beneficiary. You can learn more in our free guide to opening a Roth IRA with custody. While you might see brokers touting a Roth IRA for children (like Fidelity Investments does), there's nothing special about the way a child's IRA works, at least when it comes to the IRS. In general, the Roth IRA is the preferred IRA for children who now have limited incomes, as it is recommended for those who are likely to be in a higher tax bracket in the future.
The main difference between a custodial Roth IRA and a standard Roth IRA is that, with a custodial account, the adult controls the account and makes investment decisions on behalf of the child. Convincing a child to hand over their hard-earned money to invest in a Roth IRA can be difficult, but remember that as long as the child has earned income from work to be able to receive Roth IRA contributions, it doesn't matter where the contributions come from. In addition, when it's time to take advantage of your retirement age savings, certain eligible distributions from a Roth IRA will be tax-exempt, unlike distributions from a traditional IRA. In addition, at the time of retirement, the account owner must have had a Roth IRA open for at least 5 years, counting from the start of the first calendar year in which a Roth IRA was opened.
One way to do this is to establish a Roth IRA with custody, or what Fidelity is known as a Roth IRA for children and, more generally, as a Roth IRA for minors. Next, we'll look at two types of IRAs for children, the benefits offered by these tax-advantaged investment instruments, and how to open and make contributions to an IRA for children. If you're familiar with how Roth IRAs work, then you already understand the basic rules of Roth IRAs with custody. However, when your child reaches the legal age of majority in your state (usually 18 or 2 years old), your Roth IRA with custody will need to be converted into a regular Roth IRA in your name.