How To Give a Child Retirement Security

Look at your kids and you'll likely think of education, marriage or career, not retirement. Now, though, when kids are relatively young, is the smart time to set them up with a Roth IRA for their retirement.

T. Rowe Price estimates that parents and grandparents who bankroll or subsidize an annual $2,000 Roth IRA contribution for five years, starting when the recipient is at age 13, are putting a teen in line to receive $10,000 of annual retirement income from that original seed money. “You’re gifting 50 years of compound growth,” says Christine Fahlund, a senior financial planner at the fund firm. Remember, that’s potentially tax-free retirement income. All contributions to Roth IRAs can be taken out, free of tax, at any time, and earnings can also circumvent the IRS toll as long as your kid waits until age 59 1/2 to begin taking out profits. All withdrawals from Traditional IRAs will be hit with income tax.