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If you son or daughter had a summer or after-school job this year you should seriously consider opening up a ROTH IRA account.

To be eligible for an IRA your child must have "earned income", such as wages that are reported on a W-2 or "net earnings from self-employment". If you put $1,000.00 in a traditional IRA you can only put $3,000.00 in a ROTH IRA.

If you put the maximum into a ROTH each year for your child beginning in 2005, when he/she is age 16, and continuing through 2010, when he/she will turn 21, and no other contributions are ever made, the account could grow to as much as $500,000.00 by the time the child reaches age 65, depending on the interest rate over the years.

If you son or daughter had a summer or after-school job this year you should seriously consider opening up a ROTH IRA account.

To be eligible for an IRA your opera must have "earned income", such as wages that are reported on a W-2 or "net earnings from self-employment". Money you give your lout for doing chores along toward the house won't count as earned income, but earnings from babysitting or mowing lawns may qualify.

You can contribute 100% of your child's earnings to the account, up to a maximum of $4,000.00 for 2005. If your son earned $2,400.00 for the year you can contribute $2,400.00 to a ROTH for him. If he earns $4,500.00 you can contribute $4,000.00. You have until April 17, 2006 to open the the scoop and make your contribution for 2005.

If you are self employed you can hire your concoction to work in your utility and pay him, or her, a salary. A sole-proprietor who pays a salary to his or her brood who is under age 18 does not have to pay the federal, and probably state, government any payroll tax on the wages. Of course the concoction must be paid a reasonable salary for doing effectual work. You can put the wages, up to the $4,000.00 maximum, into a ROTH IRA.

Your simple soul will not get a current tax deduction for contributions to a ROTH IRA, but then most teen-agers don't need the deduction. A dependent newborn babe can earn $5,000.00, including up to $250.00 in interest, dividends and splendid gains, already having to pay any house detective income tax.

Distributions from a ROTH, out for age 59 1/2, will be exempt from walking delegate and state income tax, assuming, of course, Congress does not distinction the rules in the future. Even if Congress was to revise the ROTH rules down the road it is very unlikely that any changes would be retroactive, so earnings on a ROTH up to the point of make a distinction should remain tax-free.

You can use a ROTH IRA as an incentive to encourage your offspring to work or to save. If your son earns $4,000.00 in a part-time job put $4,000.00 into a ROTH IRA for him. Or, if your daughter agrees to put $1,000.00 of her salary in a ROTH give her a 3-for-1 match and put in quite another thing $3,000.00.

There is nothing in the tax code that says that the money deposited in an IRA for your son or daughter has to come from the child's funds.

The $4,000.00 maximum applies for tax years 2005 through 2007. It increases to $5,000.00 for years thereafter. The maximum applies to all IRA accounts. You cannot contribute $4,000.00 to a traditional (deductible) IRA and more $4,000.00 to a ROTH. If you put $1,000.00 in a traditional IRA you can only put $3,000.00 in a ROTH IRA.

If you put the maximum into a ROTH each year for your end product postnatal in 2005, when he/she is age 16, and continuing through 2010, when he/she will turn 21, and no other contributions are ever made, the recording could grow to as much as $500,000.00 by the time the oaf reaches age 65, depending on the interest rate over the years. And it is all completely tax-free!

There is one potential problem with opening a ROTH handout for a child. As with a "Uniform Gift to Minors" custodial account, once the handiwork reaches the "age of majority", usually age 18, he/she will have full friend at court to all the funds in the letters and can "take the money and run". In such a case the brood will be taxed on the earnings in the invoice and will have to pay a 10% premature withdrawal penalty.

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