Episode 72 - How to invest in an IRA account for kids
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Episode 72 - How to invest in an IRA account for kids
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Summary:
In this episode, I discuss how parents can set up an IRA for their children to give them a significant financial head start. While IRAs are typically seen as tools for adults, kids with earned income are eligible to contribute, making it possible to benefit from decades of compounding growth. A Roth IRA is usually the best choice for kids because contributions are taxed upfront—ideal since children typically have little to no tax liability.
Parents can open a Custodial Roth IRA on behalf of their child using their Social Security Number and by choosing a brokerage like Fidelity or Vanguard. Eligible earned income includes jobs like babysitting, lawn mowing, or working in a family business—with proper documentation.
In 2025, kids can contribute up to $7,000 or the total amount of their earned income, whichever is less. Contributions don’t need to come directly from the child—relatives can match the amount earned. Once funded, it's best to invest in long-term growth options like index funds or blue-chip stocks.
By starting early, even modest contributions can grow into substantial savings by retirement. This strategy not only builds wealth but teaches kids lifelong financial skills.