Financial literacy is an essential skill. As parents or guardians, it is our responsibility to equip our children with the knowledge and tools they need to navigate the complexities of personal finance. One powerful tool for instilling wisdom and skill is the Roth Individual Retirement Account (IRA).
The Roth IRA is not just a retirement savings vehicle for adults, it’s a valuable educational tool that can be set up as soon as your child earns money. By starting early, children can witness the magic of compounding, watching small investments turn into substantial savings over time. The lessons learned choosing how and where to invest will be invaluable to them later in life.
In addition, one of the significant advantages of Roth IRAs is their flexibility. While traditional retirement accounts impose penalties for early withdrawals, Roth IRAs allow tax and penalty free withdrawals of contributions at any time as long as your account has been open for at least five years. Earnings can be withdrawn as well without penalty before the age of 59 and 1/2 if purchasing a first time home, paying for qualified educational expenses or paying unreimbursed medical expenses.
By setting up Roth IRAs for our kids, we can offer them opportunities for financial education that will empower them to make better decisions about how and where they spend their money in the future.
