How to Open IRA Newborn Accounts

by D. Laverne O'Neal

    One of the good things about an IRA is that anyone with earned income can open an account. As long as your baby has earned income -- from appearing for pay in TV, Web or print ads, for example -- you can open an IRA in her name. You cannot fund an IRA with inheritance or investment income. Not all institutions will open an account for a minor, so you might have to shop around. Regardless of the IRA yearly contribution limit, the amount you can actually contribute to your baby's account cannot exceed what she earns in a year.

    Step 1

    Figure out whether you should open a traditional or a Roth IRA. The chief advantage of the traditional IRA is that you can deduct the contributions when you file your income tax return. If your baby does not earn enough to file a return, however, the tax advantages of a traditional IRA might not be that big a factor. As of 2012, single filers earning less than $9,500 were not required to file. The Roth IRA is made up of after-tax money, meaning you can't deduct the contributions when you file your tax returns. However, withdrawals after age 59 1/2 are tax-free. Moreover, you can take principal out of a Roth at any time for any reason without any tax liability. Though it might seem odd to consider retirement planning issues for a newborn, it's a wise idea.

    Step 2

    Find a financial institution that will open an IRA for a child. Many banks, brokerages, savings and loans and credit unions offer accounts for minors, but not all. Check with larger institutions, which tend to have more products available, as well as online-only banks. In addition, look for investment options you believe will offer long-term growth for the sake of your baby.

    Step 3

    Take a gander at your baby's earnings. If you cannot estimate her current-year earnings, remember that you have until April 15 of the following year to open and fund an account. To avoid contributing more than your baby ends up earning, it is wise to wait until the end of the calendar year to fund the account.

    Step 4

    Fill out account opening paperwork. You will need the name, address and phone number of the parent or guardian. (Only a parent or legal guardian can open an IRA for a minor. A non-parent would have to be appointed as legal guardian to be able to open the account.) You also need a Social Security number for the baby. In addition, you must designate beneficiaries for the account. Siblings or cousins might be appropriate, since no succeeding generations yet exist.

    Step 5

    Sign and date the paperwork on the baby's behalf. Include a check or electronic draft authorization for the initial contribution. Contribute the equivalent of your baby's earnings, not to exceed the IRA yearly contribution limit, which is $5,000 as of 2012 for those under 50.

    Tip

    • If you did not request a Social Security number when you applied for your baby's birth certificate at the hospital, you can complete an application and walk it in to your local Social Security Administration office. Once the paperwork is received, it should take no more than 10 days to receive a Social Security card by mail.

    Photo Credits

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    About the Author

    D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, food, health, personal finance and personal growth.

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