ROTH for a teen?

[teen persuasion]

DS2 is considering opening a ROTH w/ his earnings from his summer job. Is the fact that he is 17 going to be a problem?

He'll turn 18 in March, so he could wait until then, but he's a senior looking at college next Fall, so we'd like to get the FAFSA done as early as possible. It obviously makes more sense to do the ROTH before the FAFSA, and many schools have Feb. FAFSA deadlines. The tax filing delays won't help that much, either.

[Savoir Faire-Demogague in NJ]

It is my understanding that anyone with wage earnings can open up an IRA.
There may be nuances and minutia, but you can check the IRS web site for the rules on this.

[Taxman10]

It shouldn't be a problem

[teen persuasion]

Thanks, sounds good.

Next questions involve the money itself. He probably earned less than $2k. I remember when I opened mine at Vanguard, most of the funds had a $3k minimum. Not sure what he'll put it into.

Then there's the problem of transferring the money. He's got a passbook account (student one opened years ago), not a checking account. Again, heard there's a rule he must be 18 to have a checking account (enter into legal contracts, or something to that effect).

[Taxman10]

he could open the roth at his regular bank for now - and transfer it to VG when he's 18 or he has more $$ to put into it.

[Deleted]

Our bank offers some kind of 'learning' checking accounts from ages 16-18. Its my understanding that act like any other checking account, but may have more 'oversite'... ?? a minimum that triggers a warning call rather than an overdraft or something? ... Maybe check around with other banks to see what they might offer for him,
Or you might have to joint with him for the time being?

[Deleted]

He'll be able to put up to 2k into it (you can put up to what you earn, up to the limit) Some funds will forgo the minimum if you sign up for a monthly withdrawal from a checkings account into the IRA.

[Savoir Faire-Demogague in NJ]

Be careful about opening CDs at banks. If you want to move it to a more aggressive investment, like some mutual funds, the bank will more than likely have some hefty fees involved to do the required paperwork and transfers.

You will have to check on the min bal requirements but you can always put money into a money market account(within a Roth) at a firm such as Vanguard. Off the top of my head I do not know if their MM funds have minimum balance requirements.

[Deleted]

He could open one at Fidelity, they have a $2000 requirement.

[alsmez]

The money market at Vanguard doesn't have a minimum required balance (my MM account there has all of $30 in it right now). However, if you want to get him into mutual funds right away (which IMO you should), you could just open the account at a place like T Rowe or Fidelity that has lower minimums, then transfer the money when he has enough for a fund at Vanguard (if that's where he/you ultimately want his money to end up). As for getting the money out of his passbook account, the mutual fund company may know how to make that happen, or you could always withdraw the cash, buy a money order with it and send it to the mutual fund company.

[Plain Old Petunia]

Being 17 is not a problem. Meeting minimum requirements won't be a problem, but will limit your choices.

At Vanguard, he could choose the STAR fund as it has a 1k minimum. All other funds have higher minimums. He could choose STAR and continue contributing until he reaches 3k, then switch to say a Target Retirement fund. He could also consider a T Rowe Price Target Retirement fund which have a .5k minimum in an IRA.

As for funding, he could give you the cash, you could deposit it into your account and then send your check to the custodian. There is no requirement that his name must be on the check.

Your son is very mature to be thinking of his retirement at age 17! Good job on his financial education, Mom.

Alsmez, all VG money market funds have 3k minimums to open. There is no minimum balance requirement after it is opened.

[alsmez]

Petunia, thanks for the info - is that a new rule? I opened mine so long ago that I can't recall whether I put $3K in it or not. I use it as a resting spot for my Roth contribution for the year, so I probably did.

[Plain Old Petunia]

It is entirely possible there was no minimum when you opened yours, Alsmez. It hasn't been all that long since one could open any VG money market account with 1k. Maybe 3 years, 5 years? Something like that.

[happytraveler]

Jan 7, 2011 10:42:52 GMT -5 teen persuasion said:

Thanks, sounds good.

Next questions involve the money itself. He probably earned less than $2k. I remember when I opened mine at Vanguard, most of the funds had a $3k minimum. Not sure what he'll put it into.

You can open a ROth IRA fro your son at Vanguard by investing in their STAR Fund. Its minimum investment is $1000 and it is a fund of funds--it allocates money to other Vanguard funds like Windsor, Primecap, etc. I opened Roths for my kids (both at the time were under 18) a couple of years ago. I basically went ahead funded theii Roths--used my own money to max out their contributions (based on their earnings, not the IRS max). I will be long gone when the kids retire, but I really like the thought of knowing that is some small way I will be helping them along after I am gone.

[DVM gone riding]

Schwab had NO min requirement-I think it was $100 for initial funds purchase for most of the types of funds rec on here-mutual funds no load index/target- I think it is a great idea and wish someone had told me to do it at like 12-yep taxable income paperroute!!

[Deleted]

My bank offers a "teen" checking. The only requirement is that my name or my husband's name has to also be on the account. We are thinking about opening on for DSD when she gets a job so that she can learn how to use a checking and it will also make it easier when she goes to college for her to have a debit card instead of just an ATM card.