This might be a foolish idea, and if it is please tell me why.
Last night I got the idea that it might be a good idea to invest the money that I'm saving for my children in a Roth IRA in their name. The basic idea is that I would trade the ability to pay more of my children's college expenses for a secure/improved retirement for them.
The details are as follows:
I would put $250 a month into each child's Roth IRA for the next ~15 years. That would give us $45k in principle that I've paid into each Roth IRA. I believe that we/they could pull out that $45k for college expenses tax and penalty free. In addition there would be ~$60k in the Roth IRA in the form of capital gains. Assuming the child never added a dime to the Roth IRA for the rest of their life then they would have somewhere between $700k to $2,500k at the age of 60 when they can take the money out tax free. While $45k isn't going to cover all their college expenses it will certainly help them get through college. Then when they retire I've also given them a large boost effectively for free due to 40 years of compounding interest. As such it feels like I'm killing two birds with one stone.
What worries me is I'm not incredibly financially clever, and I've never heard of anyone doing this and/or recommending this path. Since there are lots of very smart people thinking hard about this problem, and I don't see people talking about this...
This question feels very similar to me but it looks like they're talking about using their retirement account instead of a Roth IRA in their children's name. I don't know if that materially changes the answer but it feels very different to me because they aren't directly contributing to their children's retirement fund.