The sooner you start putting money into a Roth individual retirement account, the sooner you can start taking advantage of the tax-sheltered growth. You also can start the clock running on the five-year holding period, which is one of the two requirements for taking qualified distributions. Once you're able to take qualified distributions -- the second requirement is that you to be age 59 1/2, permanently disabled or taking out up to $10,000 for a first home -- all of the money comes out tax-free. The Internal Revenue Service doesn't set a minimum age for contributions to a Roth IRA.
You can't contribute to a Roth IRA unless you have compensation from the tax year for which you're depositing the money. According to IRS Publication 590, compensation includes the income you earn from working and taxable alimony and support payments. Working income includes employee and self-employment income alike. For example, a high-schooler with a summer job could contribute her earnings to a Roth IRA, but a college student with only scholarship income wouldn't be eligible.
Reduced Contribution Limits
If your taxable compensation is less than the annual contribution limit, your compensation is your limit. For example, as of 2013, the annual Roth IRA contribution limit is $5,500 if you're under 50 or $6,500 if you're 50 or older. If your eighth-grader earned $500 selling lemonade over the summer, she could put in $500 but no more. However, the IRS doesn't trace the money. So even if the $500 from the stand went to a new bicycle, if grandpa gave a gift of $1,000, she could still put $500 from the gift into the Roth IRA.
Maximum Income Limits
The only other requirement for making contributions to a Roth IRA is that your modified adjusted gross income must fall below the yearly limits. As of 2013, you can't contribute to a Roth if you're single and your MAGI exceeds $127,000, or if you're married filing jointly and it exceeds $188,000. However, these limits are highly unlikely to come into play for a child -- unless he has some unique talent or has been given significant investments that generate lots of income. The MAGI includes all taxable income, not just compensation.
Some financial institutions allow you to open a custodial Roth IRA for your child. However, your child still needs her own compensation. These accounts follow the same rules as a normal Roth IRA, except that you are allowed to control the assets until your child turns either 18 or 21, depending on your state. Until then, you can keep your kid from taking the money out for something wacky, but you can't use any of the assets for your own benefit.
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