Start your kids on the Roth road
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"We're constantly in communication with clients about the benefit of using that income in a Roth IRA," says Tammy Virnig, principal of the retirement resource center at Vanguard.

"We try to help parents who are trying to help their kids save. Many clients call us with the Roth already in mind. I've had calls from godparents and grandparents saying, 'I don't want to give another toy.'"

If the child is a minor, an adult will have to open the account and be appointed as custodian until the child reaches legal age.

Long-term liquid dangers
And there's always the chance that when that magical day of majority arrives, Judy or Johnny will decide to clean out the account and buy a car. If that happens, the gains will be taxed and the IRS will impose a 10 percent penalty for early withdrawal. So, be sure your teenager understands and is willing to let the money grow until age 59½. Otherwise, you may want to consider an alternative.

"The Roth is a nice thing to do, but what's the objective," asks Robert Kuehl. "Most people don't want to lose control over the money, and with the Roth they have to hand it over to the child at the age of majority. There goes your big, beautiful Roth IRA because you can't stop them. So, if that's going to be an issue you'd want to go with a 529 (college savings plan) or a trust."

Contributions to a Roth can always be withdrawn penalty-free, and there are penalty-free provisions for withdrawing Roth earnings for education or a first-time home purchase. That is, money can be taken out penalty-free for education, but the gains are taxed. With a first-time home buyer, the earnings are tax-free.

But many experts say it's best to explore other options for those purchases. The Roth is meant to be a retirement account. Interrupting the tax-free growth of a Roth is self-defeating.

Starting a Roth for a minor
Some banks will let you open a Roth for as little as $100. You'll pay more at a brokerage, but you may find more investment choices at a brokerage. There are other factors to consider.

Fees can gobble up a small account. Look for banks or brokerages that charge no fees for IRAs or very low annual fees or low balance fees on accounts for minors.

"Look at the cost of investing when picking out funds," says Vanguard's Tammy Virnig. "Not just if there's a fee to open an account, but the expense ratio of the fund. Get the best for your money."

When setting up an account, look for professional guidance in selecting investments. A substantial amount of risk can be taken because the time horizon is so long. But that doesn't mean the account should be filled with penny stocks. An investment adviser can help with the best mix of growth and value stocks and funds.

Remember, this is your child's future at stake. Investing in a few of the better companies that make the products kids buy can make investing more interesting for a teenager. Take time to explain the monthly or quarterly statements and you'll give your child a hands-on understanding of how investing works.