Q. My grandson works part-time and he plans to use the money for college. I’m planning to pay for his college – but he doesn’t know that yet because we want him to feel the responsibility. What about a Roth IRA for his earnings, or is there a better place for the money?
A. You’re certainly giving your grandson a valuable gift. Not just paying for his college, but trying to teach him financial responsibility.
Your idea of using a Roth IRA for his earnings is a great choice, said Jody D’Agostini, a certified financial planner with AXA Advisors/The Falcon Financial Group in Morristown.
“Since his earnings at this stage are not very high, his current income level is in the lowest federal tax bracket and doesn’t benefit much from the pretax contributions to an IRA,” she said.
Depending on how much he earns, he would qualify to put away up to $5,500 or the maximum that he earns, D’Agostini said.
The Roth will grow income tax-free and he will be able to tap income tax-free later in life.
“He will never have to pay interest or capital gains on the investment earnings in the account,” she said. “Also, he can open a Roth IRA with a relatively small amount to get started, and if he continues to work, he can continue to contribute.”
Cheers to you for the smart idea!
Email your questions to moc.p1516123065leHye1516123065noMJN1516123065@ksA1516123065.