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Custodial IRA

A Custodial IRA is an Individual Retirement Account that a custodian (typically a parent) holds for a minor with an earned income. Once the Custodial IRA is open, all assets are managed by the custodian until the child reaches age 18 (or 21 in some states). All funds in the account belong to the child, allowing them to get started early on saving money. In addition to reaping the benefits of compounded growth, your child may be able to use the funds for future expenses like college tuition or even to buy a first home. You can open either a Custodial Roth IRA or Custodial Traditional IRA, and the respective account benefits and rules apply.

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Custodial IRAs at a glance:

  • Can be either a Traditional IRA or a Roth IRA.

  • Must be transitioned to the child when he or she reaches the "age of majority," typically 18 or 21 years old.

  • Can give children a head start on saving for future needs, such as college tuition or retirement.