Savings Account And Roth IRA For Kids

[bk1]

I would like some input on opening a savings account for my kids. One is 17, one is 15, and one is 14. Also, I would like to know how it would work to open a Roth IRA for them now that they have earned income (less than $800) to report.

I currently bank mainly with Ally and have retirement funds at Vanguard. I just wanted to include that as having their accounts at the same places would be nice.

The higher interest savings accounts interest me so kids can learn about the power of compounding interest. Much easier to show that with 2% interest instead of .1% interest that most local banks seem to offer.

For the Roth, it would not be much getting put in there now. One of the main goals would be to just get them started to make it easier to contribute in the future instead of starting from scratch.

I have checked into Ally, and the only option there seems to be a UGMA account. Where, it would be under my login and control until they turn 18. I would prefer that they could have their own login to manage the account and deposit checks if possible. Otherwise, I guess we would have to deposit their check into our account and then transfer it over into their account.

Transferring control of the account once they turn 18 sounds like a bit of a process with Ally. Although, it might just be because I am used to opening accounts being so easy with them and this seems to be more involved.

So, I would love to hear what you guys are doing as far as savings accounts for your kids.

Then, for the Roth, I would love to see some specifics on how to open one up and what documentation needs to be kept for their Roth as far as the earned income etc.

Thanks as always for your input!

[Lucky Penny Acres]

For the Roth IRA, most places (such as Vanguard) will let you open up a custodial Roth IRA for your kids. Once the kid turns 18, it is a simple process to transfer the account fully into the kid's name and control. If I recall correctly, I don't think there was even any forms to sign, just a phone call to Vanguard customer service. At most it was a single form to sign and send back.

I don't remember if there are any specific account minimums for opening a custodial account as the minimum could potentially be above $800.

For tracking earned income, retain a copy of their tax return if they are filing one. If they aren't filing a tax return, retain final pay stubs or other similar proof of earned income for the year.

For the bank account, you could always give your kid the login id and password for their account. Even though I had UTMA/UGMA bank accounts as a kid, my parents always gave me the online login information so I could track my own account and transfer from savings to checking, etc. as needed.  It was always set up as a separate login to my parents' accounts.

[MDM]

See Where to start a child's Roth IRA with very low income? for related discussion.

[Need2Save]

One comment about the Vanguard Custodial IRA Accounts.  We opened a Roth custodial IRA for son #2 at Vanguard when he had earned income as a teenager.  It did not automatically convert to his account at age 18.  (he is 19 now).  I called Vanguard for an unrelated issue and customer service told me that if I had opened it after age 18 like I did for son #1, it would not be a custodial account, but since it was opened before age 18, it was still in 'custodial' status until he turns age 25. I thought this was very interesting.  Since they are both technically of age now (over 18).  One has full control and the other does not.

It only means that his custodial Roth IRA still shows up on my personal login page.  But he also has his own login and can view statements/transactions as well. 

To the OP, even though your child only had $800 in earned income, we used the opportunity with our two sons to show how 'matching' would work. If they put in X of their own money, we would put in Y (the total of course can't be more than they earned for the year).  This gives them a taste for our an employer's retirement fund would work in the future. We have kept this up for several years now. They haven't needed the Roth money for anything at this early age yet, but I like that if they needed it - they could take their contributions out in the future. Hopefully they can just let it grow and grow.

[secondcor521]

While having the accounts at the same place as you do is nice, it's not that bad if they're at different places since you can set up electronic transfers and do everything on the web these days.

My stuff is at Vanguard but when I opened Roths for my kids Vanguard wasn't very supportive of small account balances.  Because of that, and because there was a local office that we could physically go to if the kids had questions and to drop off the initial checks, they ended up with accounts at Schwab.

I thought that the lower cost at Vanguard would result in them moving from Schwab to Vanguard at some point.  However, the investments my kids have at Schwab are already very low cost and it is dropping over time, so that's not a real concern any more.

On the bank account side, you can either go with an online bank that does offer better interest rates, or a local bank where the kids can get the experience of dealing with tellers and branch managers in person - which, although it may be going away, I still think is a good experience to have.  My kids currently all bank locally.  Oddly, they have accounts at three different banks.  Again, with electronic transfers and Paypal and such, it is pretty easy to manage.

[Unique User]

17 year old DD has two savings account, one from when she was young that was funded with birthday checks and one that we opened when she started working with BOA.  She also has a debit card with BOA and the money she has saved from working is earmarked for spending money for college.  Both are tied to my accounts and I can see them when I log in.  Same with her Roth IRA.  We opened it with Fidelity and I can see it when I log in.  Very simple to open and fund.