Fidelity Introduces the Roth IRA for Kids, Giving Next Generation a Head Start on Retirement Savings
Custodial Accounts on Behalf of Income-Earning Minors Help Families Invest for Their Child's Future
January 21, 2016 (Press Release) - BOSTON--Fidelity Investments®, the number one provider of IRAs1, today announced the Fidelity® Roth IRA for Kids, helping adults give the children in their lives a jumpstart on retirement savings. Through this product, an equivalent or portion of the minor's qualifying income—lesser of $5,500 (IRS limit) or yearly earnings - can be set aside. For example, if a minor earns $1,000, then a maximum of $1,000 can be contributed to the account.
"Turbocharge your child's retirement with a Roth IRA for Kids"
Why set aside money into a Roth IRA?
While retirement may feel far off in the future and even hard to imagine, placing a little money in an IRA at an early age can make a big impact down the road and can give a child a head start on retirement savings. The Fidelity Roth IRA for Kids offers access to a wide array of investment options with no account minimum or maintenance fees. An adult custodian such as a parent, grandparent, aunt, uncle or family friend maintains control of the account until the child reaches the required age at which time the custodian transfers the account to the individual.
"Saving for retirement is critically important at any age and teaching savings skills early can have a tremendous impact on behaviors as one ages. Families that save early have the benefit of time, giving their children a running start—especially as people live longer and have fewer sources of lifetime income," said Ken Hevert, senior vice president of retirement products, Fidelity Investments.
Why are Roth IRAs particularly well-suited for minors?
- Time is on their side: Teens have a long timeline to retirement for their investments to grow. An early starter who saved the maximum Roth IRA contribution each year from age 15 to 70 would have nearly doubled the retirement account balance of a diligent worker who saved the maximum starting at age 25.2
- Lower Income, Tax Benefits: Since teenagers' earnings typically fall within the lowest income tax bracket, a Roth's tax structure is particularly advantageous. While they may pay minimal taxes at the upfront, the money invested within a Roth IRA will then grow tax-free3.
- Penalty-Free Withdrawals for College or Buying Their First Home: If necessary, the child can withdraw the funds penalty-free for a first-time home purchase (up to $10,000) or qualified higher educational expenses—two of the biggest savings goals in a young person's life.
Three Ways a Roth IRA Can Help You Raise a Money Savvy Kid
Setting up a Roth IRA for your child, grandchild or loved one also can open the door to important family financial conversations. Those money talks can give your child the financial tools needed to be better prepared for adulthood. "Teaching your child the importance of saving for the future and introducing the concept of investing at an early age can set them up for a more informed and successful investment approach for the many savings goals they will have, including retirement," added Hevert. For example, just learning about the differences between mutual funds, ETFs, and individual stocks can help create a generation of retirement investors who are more confident in their knowledge and decisions.
Here are three tips for how you can use your child's Roth IRA as a financial learning opportunity:
- Engrain good savings habits early: Some families may want to consider asking their child to contribute a portion of earned income into the Roth IRA directly or offering to match each dollar the child puts in. Saving some of their own hard-earned money can help children get into the habit of putting a portion of income towards long-term goals.
- Illustrate the Power of Having Time on Your Side: Walk through "Turbocharge your child's retirement with a Roth IRA for Kids" or visit fidelity.com/rothforkids together to show your child the advantage of starting to save early and how much more would need to be saved down the line to catch up for lost time.
- Test Drive Investing: Sit down together as a family, or even with a financial professional, to talk through investment strategy and design a portfolio for your kid's Roth IRA. Show your child how to execute a trade and track returns over time.
For additional information on Retirement and IRAs, please visit www.fidelity.com/ira.
About Fidelity Investments
Fidelity's goal is to make financial expertise broadly accessible and effective in helping people live the lives they want. With assets under administration of $5.2 trillion, including managed assets of $2.1 trillion as of November 30, 2015, we focus on meeting the unique needs of a diverse set of customers: helping more than 24 million people invest their own life savings, nearly 20,000 businesses manage employee benefit programs, as well as providing nearly 10,000 advisory firms with technology solutions to invest their own clients' money. Privately held for nearly 70 years, Fidelity employs 42,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit www.fidelity.com/about.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time and may gain or lose money.
Fidelity Investments and Fidelity are registered service marks of FMR LLC.
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1 Cerulli Associates' The Cerulli Edge®—Retirement Edition, 3Q 2015 based on an industry survey of firms reporting total IRA assets administered for Q2 2015.
2 Hypothetical calculating pre-tax growth of annual maximum IRA contributions.
3 A distribution from a Roth IRA is tax-free and penalty-free provided that the five-year aging requirement has been satisfied and one of the following conditions is met: age 59 ½, death, disability, or qualified first time home purchase