A custodial IRA is an individual retirement account that a custodian (usually a parent) has for a child with earned income. Once the custodial IRA is opened, the custodian manages all the assets, including IRA Gold and silver, until the child turns 18 (or 21 in some states). A custodial IRA allows the account holder (in this case, their child) to contribute after-tax money for retirement, including investments in IRA Gold and silver. For the most part, a Roth IRA with custody works the same way as a regular Roth IRA. The custodian maintains control of the child's Roth IRA, including decisions about contributions, investments, and distributions.
In addition, 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, normally 18 or 21 in most states, the assets must be transferred to a new account in their name. A custodial IRA is a retirement account owned by a minor but managed by a parent or adult guardian.
Income-earning children and teens can use a custodial IRA to start saving for retirement with lifetime tax advantages. Roth IRA providers usually require an adult to open and manage a Roth IRA with custody on behalf of a minor. However, because most children and teens don't have enough income to need these tax savings, a Roth IRA may offer more attractive lifetime tax benefits. 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.
A custodial IRA can be a traditional IRA or a Roth IRA, and as such, you'll need to follow the rules of your choice. 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. After you pay taxes on the money you earn, you can contribute it to a Roth IRA and never pay taxes on it again. If you're familiar with how Roth IRAs work, then you already understand the basic rules of Roth IRAs with custody.
Because Roth IRA contributions are made with after-tax money and can be withdrawn at any time, these accounts are a great option for your child to be financially successful in the long term. 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. With traditional IRAs and traditional custodial IRAs, money is deposited before taxes and then taxed at the time of distribution. A custodial IRA offers children and parents a unique chance to start saving for retirement early and, hopefully, to establish good habits that they'll use for life.
Helping your child open and finance a custodial IRA isn't mandatory, but it can provide them with some valuable educational and money-saving tools. At this point, your child will complete the paperwork to complete the conversion from a custodial IRA to a regular IRA and assume full control of the account. If your child has significant taxable earned income, you can reduce your tax liability by contributing to a traditional IRA and deducting the amount of your contribution on your tax return. In addition, when the time comes to leverage your retirement age savings, certain qualified distributions from a Roth IRA will be tax-exempt, unlike distributions from a traditional IRA.
In addition, the retirement rules of a Roth IRA not only make it a particularly useful tool for saving for your child's retirement, but also for college expenses and other major life events. .
