Roth IRA a good option to aid grandchild

Q. I'll have $380 per month for the next eight years for which Iwish to open an investment account of some kind. It will be for myalmost 10-year-old grandson.

I am aware of the 529 accounts, but it is not likely he willattend college due to his psychiatric diagnoses. I do not want torisk the chance of the penalties on the 529 accounts. I am 63 yearsold and have thought of either a Roth or traditional IRA, but I'm notsure if they would work.

A. What a wonderful position to be in! The typical American isliving paycheck to paycheck and has a difficult time meeting his orher own needs. Being able to set something aside for your grandson isa real blessing.

A Roth IRA would be a great tool to save money for your grandson.You would be the owner of the Roth IRA and could control theinvestments and distribution of funds, and your grandson could belisted as the beneficiary. As long as the IRA was held at least fiveyears, the withdrawals would be free from taxation.

A traditional IRA would not work as well as a Roth. Deposits intoa traditional IRA would be tax-deductible, but your withdrawals wouldbe taxable. Furthermore, you would be required to pay tax onmandatory withdrawals from a traditional IRA when you reach age 70oe,something you can avoid with a Roth.

Keep in mind that you must have wage or self-employment income inorder to contribute to an IRA and your overall income must be below$95,000 ($150,000 if married) to fully participate in a Roth IRA.

Scott Hanson, CFP, is a senior adviser with Hanson McClain, aninvestment advisory company and registered principal with SecuritiesAmerica.