Investing: IRA's for the kids

If your kids have summer jobs, there are better places for them to drop their money than the local arcade or department store. One of the best bets is a Roth IRA. Kids who open a retirement account will really take advantage of all that tax-free compounding they offer. One $4,000 contribution made for a 15-year-old earning an 8 percent return can grow to $187,000 by the time he or she hits 65. If your kids don't want to wait that long, they don't have to. They can also withdraw their initial contributions at any time, tax free, to pay for college, a home or for anything else. Once the account is at least five years old, they can also use up to $10,000 of the earnings to make a house down payment. They'll pay taxes on that, but no penalties. Contributions to Roths are made with after-tax income, but that tends to not be a big deal for kids, whose salaries often are low enough to qualify them for very low (or no) tax rates. But only some investment companies allow minors to open IRAs. Here are some that do: T. Rowe Price ( ), Vanguard Investments ( ), Charles Schwab ( ) or Etrade ( ). Parents can also help match earnings and make the IRA contribution for them. That way, the kids can still blow some of their summer salaries on fun.