Executive Summary: Helping a young person start a Roth IRA is one of the most powerful financial gifts you can give. Even modest contributions, left to compound over decades, can grow into meaningful wealth—tax-free.
While many of us talk about retiring early, we rarely think about setting up someone else’s retirement. But you can—by helping a young person open a Roth IRA.
It’s tax season, and the window to contribute to retirement accounts based on last year’s earnings closes on April 15. So, as I do every year, here’s your reminder: Even teenagers can have a retirement account.
They may not be eager to save for their 60-year-old self—and that’s understandable—but that doesn’t mean you can’t do it for them.
I’ve seen the benefits firsthand. My parents funded a Roth IRA for me when I was a teenager. Decades later, I’m still thankful they did.
How a Teen IRA Works
It’s simple: Once you start earning income, you can contribute to a retirement account—even if you’re a minor.
You don’t necessarily have to file taxes to contribute to a Roth IRA, but the income you earned must be legitimate and documented—think W-2 wages. Cash payments that go unreported (from, say, babysitting for a neighbor) don’t count.
Your annual contribution is limited to what you earn, up to the annual cap of $7,500.
- Earn $2,500, and you can contribute up to $2,500
- Earn $10,000, and you can contribute up to $7,500
Now, do I really expect a teenager to save for retirement? No. But that doesn’t mean you can’t help them get started.
One approach is to let your teen keep what they’ve earned and make the contribution on your own. Another idea: Make a deal with your teen to match a portion, all or even a multiple of what they contribute.
Of course, you’ll have to do what’s right for your situation and family. Personally, I like having them contribute something. It creates buy-in and turns the account into more than just a gift—it becomes a learning experience.
Remember: When your child reaches the age of majority (typically 18 or 21, depending on your state), the account becomes theirs. They can change the investments—or withdraw the money entirely.
That’s why education matters. Pulling the money out early means taxes, penalties and—most importantly—interrupting decades of compounding. Helping them understand the value of staying invested is critical.
Roth over Traditional
For young investors, Roth IRAs are the better choice.