What Is An IRA And How To Open A Custodial Roth IRA

Roth IRAs for kids provide an ideal investment account for their situation, because children have decades for their contributions to realize tax free growth.

What is an IRA?

The IRS only has one stipulation for an individual to contribute to an IRA: you need to have earned income. That doesn’t mean money received as financial gifts for babies and kids, nor from money you earn from chores, mind you.

What is a Custodial Account?

When a minor has an investment account, it is usually in the name of the child’s parents or other guardian. These types of accounts go by the name “custodial account” or guardian accounts because the custodian makes decisions on behalf of the beneficiary. In this case, a minor child.

What is a Custodial Roth IRA and What are the Rules?

A custodial IRA works like you’d expect, with the same rules as an IRA for adults: → There’s no age limit. → The child must have earned income. → There are contribution limits.

How to Open a Custodial Roth IRA for Kids

There is no black and white when it comes to “the best account,” but there are some considerations that can help you make a decision for what will work best for your individual financial situation. - Fees. - Account minimums. - Investment options. - Investment support. 

1. M1 Finance

M1 Finance, allows you to open a custodial Roth IRA through enrolling in their M1 Plus subscription. For the first year, the company offers this as a free service. Thereafter, it amounts to $125/year.

2. Vanguard

The company has long sought to lower investing costs for retail investors by offering market index investments for increasingly affordable rates. Further, they want to make investing more accessible to the masses, including through a custodial Roth IRA.

3. Charles Schwab

Charles Schwab also offers a custodial Roth IRA with no minimum balance and no annual maintenance fee. The broker has a number of other financial products to consider as a discount brokerage.

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