In a prior post, I suggested using your money to set up an IRA for your children, with contributions equal to whatever they earned from summer, or schooltime, jobs. That kind of planning is very valuable, because saving at an early age permits many years of compounding. But there’s a way to make it even better. Most kids who work don’t earn enough from their jobs to generate more than a very small federal income tax or, more often, none. So the IRA tax deduction is of no value. If that’s the case, why not set up a Roth IRA for children’s earnings? There’s no tax deduction for contributions when they are made, but it’s not needed anyway. If the Roth IRA funds are not wihdrawn prematurely, they will be entirely free of federal income tax, and this includes al of the earnings added within the Roth IRA. In the prior post, I calculated that $10,000 at age 25 might grow into $320,000 at 65. With a Roth IRA, that sum will be free of federal income tax. In addition, the Roth IRA funds don’t have to be withdrawn beginning at age 70 1/2, which is required for IRAs and qualified plans, so even more growth is possible. Roth IRAs were only a temporary provision of federal income tax law until last year’s Pension Protection Act made them permanent, so it now seems safe to use them. For the situation of children with summer job earnings, Roth IRAs are the perfect saving vehicle.