IRA Basics (for Parents)
Another investment option available to Teenvestors is an Individual Retirement Account, or IRA. IRAs are tax-advantaged accounts that can be set up for retirement or educational purposes. They have a different set of restrictions from custodial accounts. In the sections below, we consider three different types of IRAs: the Roth IRA, the traditional IRA, and the Educational IRA.
Socking money away for the “big payoff” at retirement five decades down the road is not going to motivate the average Teenvestor to invest in an IRA. Your Teenvestor will need a little incentive from you to get going with an IRA, even though you may think the only incentive he needs is that it’s for his own good.
We’d like to suggest that you make the initial deposit in your Teenvestor’s IRA account to get him started. You can also try a savings matching incentive program whereby you contribute more to an allowance, for example, if he conscientiously contributes money to the IRA from time to time. Do anything, including impounding a portion of cash gifts from relatives, to strongly encourage him to make contributions to an IRA, especially if he has no other investments.
Your Teenvestor may find it easier to maintain an IRA if he knows that one particular type of IRA, the Roth IRA, allows early withdrawals of contributions without a tax penalty as described in more detail below.