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One of the secrets to teaching kids and grandkids about money is creating the opportunity for them to handle it responsibly, which includes watching potential growth. Why not fund a Roth IRA for a kid as a gift?

The magic of compound interest is indeed a gift that can keep on giving. Want to know how fast money can double in value? Consider the Rule of 72. This is a formula that shows you how long it could take for your investment to double in value based on a positive rate of return.

Based on this formula, let’s say you plan to give $5,000. At an interest rate of 8% it would take nine years to double that money to $10,000 (72/8=9). Gifting funds for a Roth IRA is a great way to give your loved ones a head start on building a tax-free fund for their retirement and a tangible way to show them how money can work for you.

If you are giving Roth IRA funds to a minor, the IRA must be in the minor’s name as well as the custodian’s name. Generally, if your giftee is not a minor, you’ll need to ask them to open the Roth IRA themselves. But you can give them the money to fund the account.

You can fund a Roth IRA as a gift as long as the recipient earned as much as your contribution. So, if your child earned $1,500 babysitting, scooping ice cream or mowing lawns, you could give them $1,500 to fund a Roth IRA. The maximum amount you can contribute (for people younger than the age of 50) is $6,000 in 2021. An ÃÛѨÊÓƵ advisor can provide more information and answer questions about this process if you’d like to fund a Roth IRA for a kid as a gift.