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I want to plan for my children's futures - and while I believe I understand from articles at Fool.com, Smartmoney, and Forbes, is that I cannot purchase an IRA, as such, for them: it needs to be done with "their" money (which they must have earned).

Question(s):

  • How can I setup a nominally-equivalent account for my child at a younger age?
  • What is the maximum number of these I can create in a given year for my family (children, wife, and self)?
  • Are these limits increased if I utilize both traditional and Roth IRAs?

Sidebar - is the annual limit $2000 or $5000 as of 2013? The sources above conflict on that number

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IRA is an account. You can open as many as you want.

What's limited is the contributions: you cannot deposit to the IRA (all of them combined) more than what you've earned during the year, or $5500 (for 2013), the lowest. There are also limits on how much you can deduct, depending on your income and availability of other retirement programs at your work.

You can open as many IRAs as you want in your child's name, but if your child had only earned $500 this year - that's how much you can put in these accounts.

Your wife and you share the earned income limit, so if your wife is not working, you can still contribute to the IRA in her name, based on your own earnings (i.e.: if you earned more than $11000 - you can contribute the maximum $5500 for each of you).

The limits are for all the IRA combined, doesn't matter how many accounts you have, and how many of them are Roth.

  • so, one per person in the family, up to the max per IRA, presuming they all have "earned income"? – warren May 31 '13 at 13:54
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    Every income-earning child can deposit to the max or to their earned income whichever is lower. Your ability to deposit on behalf of your non-earning spouse has it own rules, as mentioned above. – JoeTaxpayer May 31 '13 at 15:06
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    @warren the accounts are individual (that's the "I" in the IRA), and so are the limits (excluding the non-working spouse case). – littleadv May 31 '13 at 16:07
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One of the links showed:

Specifically, for 2013, your child can contribute the lesser of:

  1. her earned income for the year or

  2. $5,500.

This is correct. And while I have no issue with fool.com in general, I am a strong believer that when one cites numbers like this, the article should also state the year involved. As I quoted above.

Littleadv's answer was pretty comprehensive. All I'd add is that for a child who is likely in the zero bracket for earned income, the Roth is preferable.

Last, not to nit-pick, but the deposit does not need to be their money. My daughter earned $2300 in 2012, her $2000 Roth deposit can be from my gift to her. Or from any source. No paper trail as to the source of income is required, only that the income exist.

On re-reading I see I left out - the deposits can be spread over as many accounts as you wish, and the total is for IRA/Roth IRA total. It's silly to take small sums and create multiple accounts. Until the value is above a certain level, just find the one broker who can cover what you want to invest in.

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