By Sabrina Karl

Though it’s familiar advice to start early on retirement savings, not everyone realizes that, with your help, your minor child can get an exceptionally early start.

Roth IRAs are funded with dollars that have already been taxed, so they’re able to be withdrawn tax-free later. This makes them excellent vehicles for those currently in a low tax bracket who expect to be in a higher bracket in the future.

Few individuals fit this description better than a child with earned income from a job, because they likely make too little to incur any federal tax at all (in 2022, anyone making less than $12,950 is exempt from income tax). That allows them to avoid taxes at both ends of the Roth, contribution and withdrawal.

There is no minimum age required for a Roth IRA, but the individual does need to have earned income from employed work. It does not include unearned income from interest, dividends, or capital gains.

In 2022, children and adults alike can contribute up to $6,000 to an IRA, with the contribution limited to one’s earned income. So if a child makes, say, $2,500 in a year, they are allowed to contribute up to $2,500 to an IRA.

No one under 18 can open an IRA alone, so you or another adult will need to serve as custodian. In addition, anyone can make the funding contributions to the account.

Though Roth funds can be withdrawn at age 59½ for any reason without tax or penalty, your child can withdraw the amount of the contributions (not growth) without tax or penalty at any point after the account has been open for five years.

Of course, leaving the funds invested for decades is the ideal financial move. But if your child needs to withdraw sooner, some options exist.