Roth IRA: Now something for kids and young savers

Many advisers I spoke with said most people should contribute first to their 401(k) plans in order to snag any matching contributions that the company might offer. After all, if the 401(k) plan offers 50 cents or $1 for each dollar you put in, up to a set percentage, you grab that money.

Frank Migliazzo, an adviser in Troy, Mich., said he's told his children who are just beginning their working careers to save in that 401(k) first. If it's a larger 401(k) plan, many times the fees could be lower, too.

Yet "not every employer has a 401(k)," Migliazzo said. And not every employer offers a match.

You could look into a traditional IRA, especially if you meet various limits and would be able to take a tax deduction for a contribution. You can't make regular contributions to a traditional IRA in the year you reach 70 ½ and thereafter.

Roth IRA contributions aren't tax-deductible. But Migliazzo said many younger consumers could want to set up a systematic plan where they contribute $50 a month or so to a Roth IRA in order to take advantage of the tax-free features of the Roth.

If you pay attention to the rules, you typically do not pay taxes on withdrawals from a Roth IRA in retirement and there are no minimum distributions required from a Roth IRA while the owner is alive.

Under a Roth IRA, a saver can contribute up to $5,500 — or up to $6,500 if age 50 or older — in a given year, if one's income falls within certain limits. Single filers with modified adjusted gross incomes below $131,000 in 2015 can make at least a partial contribution. Married couples filing jointly can make at least a partial contribution if their modified adjusted gross income is less than $193,000 in 2015.

One can still contribute to a Roth IRA for 2015 by the tax deadline this year of April 18 for most of the country. You're able to open a Roth IRA even if you have a retirement plan at work.

One big advantage of the 401(k) savings plan is that it enables you to reduce your current tax bill by contributing money on a pretax basis into your 401(k) plan. Some 401(k) plans offer a Roth option for 401(k) contributions — which would be open to employees at all income levels — and other considerations would need to be reviewed there, as well.

One of the big reasons to go with a Roth is that you think your income tax rate will be higher in retirement than it is today while you're working.

Benz suggests a perfect Roth IRA candidate: Take a young woman who is 25 and working, studying for an MBA at night and planning to go into management to make far more money in the next 10 years. Her tax rate is bound to go up.

Stuart Ritter, vice president and senior financial planner for T. Rowe Price, said those in their 40s and 50s can consider a Roth, as well, as a way to control their taxable income in retirement.

Keith Bernhardt, a vice president at Fidelity, said parents and grandparents are looking for ways to give children a head start.

Bernhardt said he put about $225 into such a custodial account for his 13-year-old son who earned money shoveling snow. If the child has income on a W-2 form, it's clearly doable. If the child has babysitting or snow shoveling money, you would want documentation that the child earned money and you could talk to a tax professional about setting up such an account.

"Money can only go into the account if the child has earned income," Bernhardt said.

Beginning this tax season, savers can use a federal income tax refund money to contribute to a new starter Roth account called myRA — which is offered by the U.S. Department of Treasury.

You'd check the savings box in the refund section of your tax return. You also can contribute directly to your myRA account from your checking or savings account.