Ask Liz Weston

Get smart with your money

Kids & Money

Q&A: Can I open a Roth IRA for my minor grandchildren?

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Dear Liz: Where can I open a Roth IRA for my minor grandchildren?

Answer: Fidelity, Charles Schwab and Vanguard are among the large brokerages that offer custodial IRAs with no account minimums or fees.

Getting your grandkids started with saving for retirement is a great idea, but they’ll need to be earning their own money before you can contribute to an IRA or a Roth IRA for them. You can match whatever taxable income they receive from a job or self-employment up to the annual contribution limit, which is $7,500 in 2026. You’ll want to keep copies of the tax returns showing their income in case you’re ever audited.

If the minor doesn’t have taxable income, you could consider contributing to a Trump account. That requires filling out IRS Form 4547, but only certain people in a certain order are allowed to fill out the form. For example, if the children have a legal guardian, that person fills out the form. If there’s no legal guardian but the child has a parent, the parent fills out the form. If there is no parent, an adult sibling can fill out the form. Only if there is no legal guardian, parent, or adult sibling is a grandparent allowed to fill out the form. Once the account is established, up to $5,000 per year per child can be contributed.

That’s only the start of the many complicated requirements surrounding these accounts, so seek a tax pro’s advice before proceeding.

Keep in mind that with Trump accounts, the money is turned over to the child at 18, while custodial accounts must be turned over by the age of majority (typically either age 18 or 21, depending on the state). If you want to maintain control of the money for longer, consider funding a 529 college savings account. The contribution limits are much higher, the money is tax-free when used for qualified education expenses, and up to $35,000 can eventually be rolled over to a Roth IRA.

Q&A: Is there a tax break for paying a child’s student loans?

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Dear Liz: Our daughter took on substantial student loan debt to get her master’s degree. She owes about $60,000 and so far has only been able to work a minimum wage job.

If my wife and I were to pay off the loans, would there be any tax advantages or other benefits we could use to offset the expense?

Answer: You won’t get a deduction for paying your daughter’s student loans and you’ll need to be mindful of gift tax rules, but that shouldn’t deter you from this generous act if you can afford to help.

Education debt is the norm for today’s college graduates, but a Gallup poll found the majority say their student loans caused them to delay at least one major life milestone such as buying a home, starting a business, getting married or having kids. Borrowers often forgo saving for retirement in their attempts to pay down debt, losing years or even decades of compounding and diminishing their future wealth. Student loan debt also can create mental health burdens, leading to more depression, anxiety and a reduced quality of life.

The annual gift tax exemption allows you to give up to a certain amount annually to any recipient without having to file a gift tax return. In 2026, the limit is $19,000 per recipient, so you and your wife could give $38,000 this year toward paying down your daughter’s student loans. The exemption probably will be the same or slightly higher next year, allowing you to completely pay off the loans without having to file a gift tax return.

If you wanted to pay the whole bill in one go, you’d have to file the return but you’d be unlikely to pay any gift taxes. Gift taxes are only owed once the amounts you give away above the annual exemption exceed your lifetime estate and gift tax exemption, which for 2026 is $15 million.

Q&A: A first paycheck means getting to know Uncle Sam

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Dear Liz: My recently graduated child got a job and he will be given a 1099 tax form for his earnings. I know he will have to file his taxes differently and will need to pay both state and federal income taxes, but will he also make payments toward Social Security? Will these months (and maybe years) go toward his lifetime “credits” of paying into Social Security?

Answer: The company is paying your son as an independent contractor rather than as an employee. That means he will need to file his taxes as someone who is self-employed. So yes, he’ll be paying into Social Security — and he’ll be doing so at twice the rate of employees who receive W2s.

Normally, Social Security and Medicare taxes are split between employees and employers. Both pay 7.65% of the employee’s wages, for a total of 15.3%. Self-employed workers must pay both halves.

Your son won’t have taxes withheld from his earnings, so he’ll likely need to make quarterly estimated tax payments to avoid penalties. A tax pro can help him set up these payments and suggest legitimate expenses he can use to reduce his tax bill.

Q&A: These major financial decisions shouldn’t be DIY projects. Talk to an expert!

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Dear Liz: I anticipate being dead soon (cancer). I have established an irrevocable trust for my 8-year-old child, with my 47-year-old wife as the trustee. With respect to taxes and other issues and naming beneficiaries, what is the optimal strategy regarding my child for life insurance and traditional and Roth IRAs? My wife will get the 401(k).

Answer: The best person to answer those questions is the estate planning attorney you (presumably) used to create the irrevocable trust. Estate planning should not be a do-it-yourself activity, particularly when minor children are involved. The wrong plan could give too much too soon to your child, or tie up the money too long. You also don’t want to unreasonably stint your wife in your efforts to preserve money for your child. Also, the optimal strategies for tax purposes may not be the best for your family’s situation.

For example, the best way to minimize taxes may be to leave all the retirement money to your wife. Spouses who inherit retirement funds have the option of treating the accounts as their own. That means your wife wouldn’t have to begin required minimum distributions from the 401(k) or the traditional IRA until she’s 75. (The current RMD age is 73, but it rises to 75 for people born in 1960 and later.) She would not have to take distributions from a Roth IRA she inherits from you.

Non-spouse heirs generally have to drain retirement accounts within 10 years. Minors who inherit retirement funds don’t have to take the first distribution until they turn 21, but then the accounts must be emptied within 10 years.

Life insurance proceeds typically aren’t taxable, or payable to a minor child. But you can create a trust to receive and dole out the proceeds to your child. Your estate planning attorney can help you set this up.

Q&A: Missing the paperwork on your IRAs? All is not lost

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Dear Liz: I have four daughters, now in their late 30s and early 40s. When they were very young, I started investing for them. As they began to earn their own money, I started Roth IRAs for them as well.

A decade ago, due to an unexpected divorce, a 30-day escrow and a move, I lost the paperwork for their accounts. After the investment company was acquired by another in 2015, I forwarded the new company’s contact information to my daughters. One transferred her account to another investment company, while her sisters left theirs in place.

Recently I found the old investment paperwork. The company has changed hands again, but the new company says it has no information about my three other daughters’ accounts. Can anything be done?

Answer: Since the latest company can’t find the accounts, your daughters should contact the escheat office of the state where you lived before your move.

Perhaps you didn’t update your address with the original company when you moved and the account statements or other mail were returned as undeliverable. If the company and its successor couldn’t find you — and some companies don’t look very hard — the accounts would be considered unclaimed and would have to be turned over to the state.

Links to state escheat offices can be found online at unclaimed.org, the website for the National Assn.
of Unclaimed Property Administrators.

The good news is that there’s no time limit for claiming previously unclaimed property.

The bad news is that some states will liquidate stocks and other investments after escheatment. If that’s the case, then the three daughters who didn’t move their accounts will have missed out on nearly a decade of investment returns.

Q&A: My kids grew up. Will their credit scores go down?

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Dear Liz: Many years ago I took out a credit card to pay for my two children’s college expenses. They were authorized users for miscellaneous expenses. They no longer use or even have access to the cards. Now they are both in stable, well-paying jobs. I would like to keep the card but remove the authorized users. How would this affect their credit scores? Or mine, for that matter?

Answer: You helped your kids establish good credit by adding them as authorized users. Removing them won’t affect your credit scores. The effect on their scores depends on how well they’ve managed credit on their own.

The impact should be minimal if they’ve continued to build credit by opening their own credit cards and paying those on time. Ideally, for credit-building purposes, they’ll also have a solid history paying an installment loan, such as a mortgage, student loan or auto loan.

If they haven’t used credit much and have a thin file — generally, fewer than five accounts showing on their credit reports — the damage might be more significant. If that’s the case, you may want to delay removing them as authorized users while they open other lines of credit. They should know that they don’t have to carry debt to have good credit: Just using credit cards lightly and paying the balances in full should do the job.