If your kid earns money from a job, open a custodial Roth IRA and put in as much as they earned, up to the annual IRA limit. The money can come from you. Decades of tax-free growth can turn one summer paycheck into serious retirement money, and the contributions stay available if they need them sooner.
Time does most of the work. Assuming a 7% average yearly return before inflation, $1,000 contributed at 15 grows to about $29,500 by 65, and if the withdrawals meet the Roth rules, none of it is taxed on the way out.
The one requirement is earned income. There’s no minimum age, but a child can contribute only up to what they earned from work that year, capped at the annual IRA limit. A W-2 job counts, and so does self-employment like babysitting, pet sitting, or mowing lawns. If no tax form shows the income, keep a written log of who paid, when, and how much.
The dollars don’t have to be theirs. If your 16-year-old earns $2,000 bagging groceries and spends every cent, you can put $2,000 into their Roth as a gift. Contributions from everyone count toward the same cap, so nobody can add more than the child earned.
Open the account at a brokerage that offers custodial Roth IRAs and pick a low-cost, broad index fund. You make the decisions as custodian until your state’s age of majority, usually 18 or 21, when the account moves into their name. Offering to match what they save from each paycheck, within their earnings, builds the habit along with the balance.
Their contributions can come back out at any time with no tax or penalty, so the money isn’t locked away if college or a car comes first. It’s the earnings the Roth rules hold for retirement.
Start with this year’s paycheck. The earliest dollars get the most years to grow.
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