My 78-year-old father has convinced my tween daughters to put their babysitting/pet sitting money into a Roth IRA. It says it will be like opening a very nice, and potentially needed, present when they are his age. One has $400 and one has closer to $500. They are over 11 and under 18 years of age.

I am wondering how I would go about opening a Roth for them. It’s earned income, but since they are paid in cash and are in middle school, they obviously don’t file taxes. I love my dad’s idea, just not sure it is do-able. Thanks, Terry

Terry Says: Your father has a great idea — but it’s too soon!  First, they are not reporting this earned income, so they can’t contribute it to a Roth IRA.  Second, most IRA custodians require at least a $1,000 deposit to open a Roth (Vanguard, Fidelity — and only in a few funds, or minimums are higher).

So, I suggest that your Dad open a 529 college savings account for each of them — Vanguard would be my choice.  He can contribute $14,000 per year (and combine 5 years in one immediate contribution, if he is feeling generous)!  Or he could start with a few thousand dollars in each account– or just open one account they could share.  Then they could add small contributions from their own earnings, because the accounts do not require contributions to be made from “earned income.”    OR, read my recent column about Stockpile.com — a great way to gift shares of stock in amounts as low as $25.  They could then use their savings to buy more shares of stock — a project he could enjoy with them.

A Roth for children or grandchildren is a great idea — once they start earning real money.  Then a parental offer to “match” their contribution up to the allowed maximum would be a great incentive — and as your Dad suggested, a very nice present in the future.

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