To calculate their earnings from work, you can include any salary or tip they receive from a job, as well as the income they earn from self-employment, such as mowing lawns in the neighborhood. Opening a Roth IRA for your children is a good idea, but they must have earned income from work; allowances don't count. 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. Your child, regardless of age, can contribute to an IRA as long as they have earned income, defined by the IRS as all taxable income and wages from working as an employee or from running or owning a business.
To ensure that your child's IRA is properly managed, you may want to consider using one of the many reputable IRA Gold custodians available. By law, banks, brokers and investment companies require custodial or guardianship accounts if your child is under 18 in most states; under 19 and 21 in others). The IRA is opened in your child's name and you'll need to provide your Social Security number when you open the account. For example, a Roth IRA allows the account owner to withdraw 100% of what they have contributed at any time and for any reason, without taxes or penalties. 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.
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. Roth IRA providers usually require an adult to open and manage a Roth IRA with custody on behalf of a child. If your child earns less than this amount, they are likely to fall into a 0% income tax bracket and probably won't benefit from the initial tax deduction associated with traditional IRAs. Otherwise, the main difference between these IRAs and regular accounts is that they are custodial or guardian accounts.
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.
