Fund Your Teen's Roth IRA

Kiplinger’s idea of a good Christmas present for a teenager is helping them start a retirement account. We kind of think the average teen is going to have a hard time understanding why that’s a “better” gift than, say, a game system, but the underlying idea is sound. As long as your teen worked at some point in 2007—even babysitting counts—he can open a Roth IRA. But other people (that means you) can fund it, up to the amount the kid earned in wages.

There’s no minimum age limit to open a Roth IRA, and you can fund it up to your tax filing deadline—so you’ve got a few post-Christmas months to surprise the kid instead of springing it on him Christmas morning.

“Tax Tip No. 8: Fund a Kid’s Roth IRA” [Kiplinger]
(Photo: Getty)


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  1. savvy999 says:

    So what’s to stop my toddler from earning reportable “income”– from me– by being cute, eating his peas, and not pooping in his pants? Say, $10 a week?

    Then I can stash some credit-card cashback into a Roth in his name, earning fat dividends for like 70 years?

    $1000 @ 7% compounded yearly over 70 years = $114k

    Muwhahahaaa, my plan is flawless! Or not?

  2. Zgeg says:

    Plus you can use a Roth to pay for school.. Might not be a good idea for a teenager but if you are planning on opening a 529 for the little ones, ditch that idea and open a Roth for yourself and put your 529 money in there. If your kid turns college age and decides to be an artist, the 529 money would be penalized if you don’t use it on education, if it’s in the Roth, head start on retirement! In my house it is also known as “The bigger boat fund”…

  3. rbb says:

    @savvy999: If you employ your child, you will have to take the hit for the payroll taxes, FICA, SSN, medicare, etc.

    If the parents were expecting to pay for their child’s college expenses, but the child manages to get an appointment to the Coast Guard Academy, Merchant Marine Academy or one of the three military service academies, then filling their IRA is the best way for the the parents to say “thanks.”

    At any of the Academies, the education is free. At the same time the student is paid a salary equivalent to an E-4 or E-5 (I forget which) to cover expenses outside of room/board/tuition/books.

    Because they are paid, they are eligible to contribute to an IRA. So, the parents, now off the hook to pay for 4 years of college can easily afford to fill a ROTH IRA for their child from the money saved.

  4. JBerlinsky says:

    As a minor, I read this and instantly thought “aw crap I should open one of those.”

    I made some phone calls this morning and filled out some forms. Of course, nobody will let me open a Roth, nontheless a normal IRA, until I hit 18 or have a parent UMTA it. My parents will never UMTA for me on a retirement account, so I’m kindof stuck. Any suggestions?


  5. comopuedeser says:

    Invest in a blue-chip stock directly through a DRIP plan. I started at a very young age sending in voluntary cash payments of 10-20 dollars which set a good foundation for future investing.

    I’d also do the research. Present a strong plan for your parents that they can’t refuse of why they should support your beginning to invest in the future.

  6. @JBerlinsky: Just based on what little online research I’ve done, I think you’re stuck with getting a parent or legal guardian to open it for you via UTMA or UMGA. I can’t find any special loopholes for New Jersey. But you should definitely ask a financial advisor, or maybe your parents’ accountant if they have one, to see what your options are.

    Anyone else have more information?

  7. BeFrugalNotCheap says:

    I know dave ramsey is sort of a hot button topic around here but I was listening to his show one day and a mother of a 16 year old daughter called in looking for financial advice. Her daughter had saved up $1200.00 from babysitting gigs and she was asking about a ROTH IRA. Dave did the calculations on what it would become at age 65. It was close to 250 grand with no contributions or withdrawals. Not bad.

  8. jl3 says:

    Roths are a much better option, IMO, than 529 plans. Like ZGEG said, if your kid doesn’t go to school or does earn a free-ride, then you can keep that money for yourself. Can’t do that w/o penalty on a 529. And, since it’s after tax income, there is no tax once you do take it, I believe. A month after my son was born my wife and I opened one up, and max it out at $4K/year per person.

  9. rbb says:

    @JBerlinsky: I know it’s not an IRA, but you can put the money into a 529 plan to save for college. All proceeds from the account are tax free if used for qualifying college expenses.

  10. riggs says:

    @Zgeg: One thing worth noting about a 529 is that the beneficiary can be changed-so if you have one kid who wants to eschew college, but another who’s going, you can give the college-bound kid the first one’s money. Or anyone else who’s a member of the original beneficiary’s family. So let’s say your wife wants to get that masters’ degree…she can be changed to the beneficiary. 529s aren’t a magic bullet, but they work in a lot of cases.

    /my two cents

  11. flyover says:

    I started a savings account for my 1.5 yr old nephew as a Christmas present. Every year, I’ll put in money for the various holidays and will have a nice chunk of change for him to spend as he’d like when he turns the age I give him access :)

    He’ll still get meaningless gifts, but I think this is one he’ll appreciate in the end!

  12. Well Hell, I’d take a Roth IRA as a present!

  13. JBerlinsky says:

    @RBB: I looked into that; still have to be 18.