As a follow up to last week’s brief overview of custodial IRAs, the following article gives additional details on how custodial IRAs work and the benefits of setting one up for your child.

Start Good Saving And Investing Habits Early

from CharlesSchwab

If your child works and has earned income, he or she may be eligible for a Custodial IRA. As a parent, you can open a Custodial IRA for your child. There are lots of great reasons to consider this, including:

Opening a Custodial IRA for your child can be a great way to teach important lessons about the value of saving and investing.

As with all IRAs, funds invested in a Custodial IRA qualify for special tax treatment. With an early head-start, your child’s earnings could potentially benefit from many years of tax-deferred compounding.

A Custodial IRA can also provide an additional source of funds for your child’s college education-or even help them to buy their first home.

How It Works

• A Custodial IRA account can be opened as either a traditional IRA or a Roth IRA.
• The account is managed by a parent or guardian for the benefit of the child.
• Funds in the account belong to the child and must be turned over to the child at the age of majority. Although the general principles for custodial accounts are the same across the country, the age of majority when the child is entitled to control the account and take the assets varies from age 18 to 21 depending on the state. Some states allow the designation of a higher age under certain circumstances.¹
• Assets placed in the account are considered an irrevocable gift and immediately become the property of the child. In other words, you aren’t allowed to change your mind and take the assets back, and the money in the account must be turned over to the child once the custodianship ends, usually at age 18 or 21, depending on your state.
• While the objective of an IRA is to save for retirement, the child may be able to use funds earlier for qualified higher education expenses, first-time home purchases or other qualified reasons.

Investment Choices

Custodial IRAs give you the same investment choices as our regular IRA accounts. With a Custodial IRA, you will have the freedom to:

• Invest in stocks, bonds, mutual funds, and more. 
• Trade online, by phone, or in a branch. 
• Use online research and planning tools.

Visit CharlesSchwab for answers to frequently asked  questions about custodial IRAs.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.