You're Never Too Young for a Roth IRA

I was recently interviewed by Ann Carrns from the New York Times about the importance of teenagers setting up Roth IRAs as soon as they have any earned income.  In the article I noted that many people think there is a minimum age requirement for opening a Roth and that is not the case.  If your baby is a model and has earned income, he or she could conceivably open a Roth IRA before they reached their first birthday. (Technically, the Roth IRA will be a custodial IRA because minor children cannot open their own accounts until they are 18 or 21 - the age varies by state).

My children were not child models, but they did start stuffing envelopes and applying postage for my business when they were 12 so I opened Roth IRAs for them then.  Now, envelope stuffing won't add up to $6,000 per year (the maximum amount that someone under 50 can contribute to a Roth) but if you can get even a few hundred dollars a year into a Roth when your child is 12 or 14 or 16 those contributions can snowball over time. 

One other point - it is also not a requirement that your children receive an actual paycheck before they start a Roth.  If your child walks the neighbor’s dog or babysits then that money “counts” too.  My suggestion is that the child start a notebook or spreadsheet that tracks the days worked and the amount earned.  For example:

July 8-11, 2022                Dog sat for the Jones family, pay = $150

July 20, 2022                   Babysat for the Smith Family, pay = $45

And, if you are wondering how you will convince your 14-year-old to invest in their Roth IRA you could offer a “match” as an incentive.  As an example, you may offer to match their contribution on a dollar-for-dollar basis.  Suggest that if they contribute $50 you will match it with another $50.  That might spark their interest in contributing.  Your children cannot contribute more than they earn in a year so keep that in mind if you are offering matching dollars.  One other restriction, if they make more than $6,000 per year, they will be limited to contributing $6,000 because that is the contribution limit for everyone under age 50. 

One question that I see a lot?  Can all of the amounts contributed to the child’s Roth come from their parents?  The answer there is YES!  If you were so inclined, you could contribute the full amount that your child earns – they do not have to contribute any of their own money. 

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