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Setting up a Child IRA

Setting up a Child IRA

It’s normal for parents to worry about their kids. Although young children’s retirement isn’t an immediate concern, smart parents can help their kids get a head start on saving for retirement by setting up a Child IRA. Here’s why it’s a good idea. There’s no lower age limit when it comes to starting an IRA. A Child IRA is a custodial IRA that can be funded with pre- or post-tax money; it functions the same as a regular IRA except that there is a custodian overseeing the account. A Child IRA can yield unbelievable results. If you contribute roughly $3 a day to a Child IRA from the moment a baby is born, that’s about $20 a week, $80 a month or $1,000 a year. If you do that every year until the child reaches the age of 19 and then stop contributing, assuming an 8% return per year, the child will have more than $2 million at the age of 70. Is there a catch? Well, yes. While nothing prohibits a child from establishing a Child IRA, a child needs a paycheck to offset an IRA contribution. IRA rules say that to contribute to an Individual Retirement Account—at any age—you

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