Because there are no age restrictions on Roth IRA accounts, children can use them to get a head start on both retirement savings and wealth-building goals.
Children have decades for their Roth IRA contributions to grow, tax-free. The power of compounding works by exponentially increasing the account's value. First, all profit earned will be added back to the principal amount, and then reinvested in the stock market to accelerate account growth.
To determine the amount of time to double your investment, divide 72 by the interest rate. For example, if your child invests in the S&P 500 Index and it returns 10% over time, they will double their investment value in the portfolio in 7.2 years .
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