A. Yes, you can.
Any child, as long as he or she has earned income, can set up a Roth IRA account. So if your teenager son or daughter is working a summer job and has income, it's a good idea to set up a Roth IRA account for him or her.
Where to set up a Roth IRA for a teenager?
While some brokerage firms don't let minors open IRA's, some do and it's easy to open a custodial IRA account. You need to pay attention to minimum amount required to open an account, annual management fee required or not.
Once a custodial IRA account is set up, your son or daughter can invest in anything available at that broker. The IRA must be held in his or her and the custodian's name, and must use the minor's social security number.
Charles Schwab allows a minor to open a custodial IRA with $100, and it charges no annual or maintenance fees. A minor can establish an IRA at Vanguard as long as a parent or custodian signs the adoption agreement. The minimum initial investment is $3,000 for most funds, including the target-retirement funds; however, the investment minimum is just $1,000 for the STAR Fund (a fund-of-funds). There’s a $20 annual fee for accounts with less than $10,000, which can be waived if the investor signs up for e-delivery of statements and reports.
Please note, your child's earned income cannot be reported on the parent's tax return.
If your teenager files his or her own tax return, you can still claim him or her a a dependent on your tax return, as long as the child passes all the dependency tests:
- Citizenship Test
- Relationship Test
- Age Test
- Residency Test
- Support Test (meaning you, the parent, supply more than half the child’s support, i.e. food, shelter, clothing, medical care, etc)
- Dependent Taxpayer Test
- Joint Return Test
The details on these tests can be found at the IRS website Publication 501 http://www.irs.gov/pub/irs-pdf/p501.pdf