Roth IRA contributions can benefit young investors, who’ll profit the most from long-term compounding. Youngsters probably won’t earn more than $95,000 per year so they can make a full contribution: $2,000 in 2001 and $3,000 in 2002, provided they have that much earned income.
You should urge your children or grandchildren to set up Roth IRAs as soon as they have earned income. Say your 12-year-old daughter earns $2,000 babysitting this year. Have her put that $2,000 into a Roth IRA. (You can put in the money for her, as long as she has earned that much.)
Assume her Roth IRA earns 10% a year, which is less than the long-term average for stocks over the past 75 years. By the time she’s 60 years old, that $2,000 will be worth nearly $250,000!
Imagine how much she can accumulate if she puts in that $2,000 when she’s 12, 13, 14, etc. By the time she passes age 59-1/2, every cent can be withdrawn, tax-free.