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GoldenFool writes:
My son's in 8th grade and has income from newspaper delivery. If I put that (about $1500 this year) in a Classic IRA and, hopefully add more in every year if he keeps his job, than we should have a small nest egg for his college expense by the time he starts college. The purpose here is to let money grow tax-free versus a cutodian account that pays taxes every year.

A custodian account that invests using a LTBH (Long Term Buy and Hold) strategy also effectively defers tax until withdrawal (until you sell), and is taxed at more favorable rates than income from an IRA distribution (10% vs. 15% for low filing status). However, if he makes enough that he has to pay income tax now (I think that would have to be more than $4300 though; someone correct me if I'm wrong).

May be it is more "profitable" if we put the money in Roth? That way, the withdrawal is even non-income-taxable. But as of now, I'm not sure if Roth early withdrawals enjoy the same exclusion as Classic IRA.

Withdrawals for educational purposes from a ROTH IRA are exempt from the penalty tax, but you still have to pay income tax; so there's no particular benefit there. However, it could be a win if you expect to not exhaust the account (it would give him an early start on saving for retirement).

The problem with all of these options is that your son will have control of the funds once he reaches majority. Make sure you are comfortable with that.

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