IRAs for Kids

Working as a teenager has almost become a right of passage here in america. A tradition if you will. What is not part of that tradition is saving for your retirement. I mean you are young, you are free, and most likely saving up for a car or college. Why think of retirement now?

But it should be a tradition, because it’s a really good idea. Especially a ROTH IRA. think of it as A Long, Long term savings account. One you will reap the rewards for when you retire, because Let’s face it no one wants to live on social security alone!

This is the 411 of Roth IRAs for kids. Here’s what you need to know about IRAs for kids. Let’s start with the Roth IRA option.

Roth IRA Contribution Basics

Since a Roth IRA contribution is made after taxes are paid on that money, the account holder’s age is irrelevant.

So, any money earned can be entitled as a Roth Contribution for this calendar year. If created and contributed to before April 15, 2022 this can be used for last year, starting your ROTH a year early.

For both the 2021 and 2022 tax years, your working child can contribute the lesser of

Their earned income for the year, or
Up to $6,000.

Modest Contributions to Child’s Roth IRA Can Amount to Big Bucks by Retirement Age

By making contributions now, during your teen years, that money will potentially grow and work for you crefor a few years during teenagerhood, your kid can potentially accumulate quite a bit of money by retirement age.

But realistically, most kids won’t be willing to contribute the $6,000 annual maximum even when they have enough earnings to do so.

Try talking a teenager into saving a significant amount of money instead of spending it all. Good luck! Be satisfied if you can convince your child to contribute at least a meaningful amount each year. Here’s what could happen.

- Say a $1000 contribution is made throughout the year for 4 year, in 45 year you are looking at a possible additional $33,000 in retirement (at 5% growth). If you assume a more optimistic 8 percent return, the account would be worth about $104,000 in 45 years.

Save a little now and earn a lot later!

The more money invested early on the greater the return later.

Why the ROTH Ira is worth your time and investment now.

For a kid, contributing to a Roth IRA is a much better idea than contributing to a traditional deductible IRA.

Here is why:

Since a Roth IRA is money contributed after tax you can pull your contributions without penalty. Contributions as in that you put in, not the money your money earned for you.

You can use your contribution money to pay for college or most anything really. You have to be 59 ½ to start removing the earned portion of your IRA contribution tax-free.

Something of note: (Maybe more common sense) the more you keep in or contribute to the Roth IRA the more it grows. You don’t have to stop contributing, even if it is not a large contribution. The more you add and do not withdraw the larger your tax-free retirement will be.