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April 02, 2009


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They definitely are great. My parents helped me get a Roth IRA started when I was 16 and had my first job.

Wow, not only had I not thought about this... I actually hadn't heard about it either. This is a fantastic idea for people with teenage kids!

Warning: My Dad opened a Roth IRA for me at TD Ameritrade (then TD Waterhouse) with $150 that I earned selling soda. He put the money in a money market (I guess because of the fees/minimums needed to invest it). Two years ago it was worth $163 and I rolled it over to Vanguard. But only about $85 rolled over. TD Ameritrade took $75 of my money to execute the transaction. Talk about a bad return on investment!

This sounds like a good idea but the kid had better keep close track of that 'earned income' in case the IRS challenges it, since she probably won't get a W-2 or file a tax return.

Also, I would check to see if contributions held in a Roth IRA are considered student assets for the purposes of college financial aid. (Earnings aren't accessible without penalty, so they probably aren't, but contributions? Who knows?)


I had a TD Ameritrade account and I explicitly saw a fee listed for rolling over to another brokerage firm.

You should have withdrew the money in cash and deposited yourself (which was what I did). I know you probably didn't know about it but it would be easy to ask before doing it.

You make some good points. It definitely is a good idea to keep track of earned income contributed to a Roth IRA, especially if there is no W-2 form associated with it. It's unlikely the IRS would challenge a small Roth IRA, but you can't be too careful with the IRS.

The Free Application for Federal Student Aid (FAFSA) that students fill out for financial aid consideration doesn't ask for information about IRA assets, so they are not included when the Expected Family Contribution is calculated. That actually makes a Roth IRA a great way to save in your child's name without affecting financial aid. Keep in mind, though, that your child will fill out a FAFSA for each year that they are in college. Any withdrawals from a student's Roth IRA that get included in taxable income (usually those that exceed total contributions) will go onto the next year's FAFSA as taxable income for the student.

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