Charlie has become more fascinated with Stocks and Bonds in the last year and Charlie’s turns 18 in December so I wanted to give Charlie a gift that would last a lifetime. I’ve been looking into stocks and bonds as well as Custodial Roth IRA. Researching all the different options can become overwhelming so I wanted to share tips I learned with you.
In our family turning 16, 18 and 21 is a major milestone in our home not just socially and legally, but financially too. A Custodial Roth IRA is a retirement account opened by an adult (usually a parent or guardian) on behalf of a minor who has earned income. The custodian manages the account until the child reaches the age of majority—typically 18 or 21 depending on the State. For Charlie I would need to start his account now and not wait until his Birthday.
- Contributions are made with after-tax dollars
- Earnings grow tax-free
- Withdrawals in retirement are tax-free, if qualified
- The child must have earned income (e.g., from a Summer job or freelance work) Charlie does from the Lawns and Honey-Do jobs he does for our friends and family. Does your child have earned income?
Charlie turns 18 in December as I said earlier (or 21 in some States), the custodial Roth IRA must be transferred into their name. This means: The child becomes the legal owner of the account and they gain full control over investment decisions and they can make contributions, withdrawals, and adjustments independently Remember his transition is not automatic—you’ll need to work with your financial institution to initiate the transfer.
Benefits of Taking Control at 18
- Financial Literacy: Managing a Roth IRA teaches budgeting, investing, and long-term planning.
- Tax-Free Growth: Starting early means decades of compounding growth.
- Flexibility: Contributions (not earnings) can be withdrawn anytime without penalty, useful for emergencies or education.
I wish I had knew about a Custodial Roth IRA when Charlie was younger and he would have had enough money for a down payment on college of a ca or even a apartment of his own. But my parents didn’t teach me about finances and I never thought to teach Charlie about them even though we #Homeschooled and could have turned this into a class.
Here are some websites you might want to check into on starting a stock portfolio:
The first-timers guide to buying stocks
Thank you,
Glenda, Charlie and David Cates
