You're partially correct. One of the nice things about the Roth IRA is that it's so versatile. You can withdraw contributions to a Roth IRA at any time without paying taxes or a penalty. If you dip into earnings, you'll owe taxes, but you won't be hit with the 10 percent early-withdrawal penalty if the money is used to pay for college.
But I'm afraid I have to toss a monkey wrench into your plan: You can't open Roth IRAs for your sons unless they have earned income from a job. And because they are only 4 and 6, I'm guessing that this is not the case.If saving for college is your primary goal, you'd probably be better off opening state-sponsored 529 accounts for your sons.
Can I open a traditional IRA if I'm under 18 and get a tax deduction off my earned income for 2007?
Yes, you can. But Kiplinger's generally recommends that young people open a Roth IRA, which has no upfront tax deduction, because their income tends to be low and they won't miss the tax break. And unlike a traditional IRA, the Roth offers tax-free income in retirement.But if you feel you need the tax break now, go ahead and open a traditional IRA.
My daughter has a custodial account that earned about $1,000 in interest in 2007. She also worked for the first time last summer and earned about $1,050 at an ice cream store. Can I open a Roth IRA in her name for $2,050 for 2007?
Sorry, no. You can open a Roth IRA and by all means do it but only for the amount of your daughter's actual earned income, which was $1,050.
I am 20 years old, and during 2007 and 2008, I will earn $13,000 from an internship at a company. I would like to open a Roth IRA and make a contribution for each year. But my parents claim me as a dependent on their tax return. If I open a Roth IRA, will I have to be independent?No, you won't. You can open your own Roth IRA even if your parents claim you as a dependent. When it comes to opening a Roth, the critical factor is whether you have earned income from a job, which you do.
Janet Bodnar is deputy editor of Kiplinger's Personal Finance magazine and the author of "Raising Money Smart Kids" (Kaplan, $17.95). Send your questions and comments to [email protected].