Last month, when we talked about opening a Roth IRA for kids, some readers wanted to know if you could take advantage of DRIPs, short for dividend reinvestment programs, for kids, as well by opening a Roth IRA directly with a dividend reinvestment plan. The answer? Yes, if the plan offers an IRA option, which not all do. In essence, you are opening an account with the transfer agent or plan sponsor instead of with a stock broker, but the process is virtually the same.
In a lot of ways, using a DRIP is unnecessary if you are going the Roth IRA path for your children because most brokers now offer free or low-cost automatic dividend reinvestment on any stock you can purchase. You get the (typically) better account statements, mobile apps, faster response time, and better customer service than you would with a plain vanilla dividend reinvestment program so there isn’t much advantage with going directly to the transfer agent in this case, unless you are terrified your stock broker will go bankrupt and the value of your assets exceeds SIPC insurance limits.