Opening a Roth IRA for a teenager

If a 16-year-old puts $2,000 into a Roth IRA and never contributes another cent, that money grows to roughly $117,000 by age 65 at a 9% average return. If they contribute $2,000 per year for just five years (ages 16–20), that $10,000 total investment grows to over $500,000. Tax-free. This is compound interest doing what it does best when given five decades to work. No other financial move at this age comes close.

The requirements

• The teen must have earned income — W-2 wages, 1099 self-employment income, or documented freelance work all count.
• Contributions can't exceed the teen's earned income for the year. If they made $3,000, the max contribution is $3,000.
• The annual Roth IRA limit applies ($7,000 in 2024). Most teens won't hit this.
• Under 18, most brokerages require a custodial Roth IRA — the parent owns the account until the teen reaches the age of majority (18 or 21 depending on the state).
• Fidelity, Schwab, and Vanguard all offer custodial Roth IRAs with no minimum investment requirements.

The parent cheat code

Nothing says the teen has to fund the IRA with their own paycheck. If your teenager earns $4,000 from a summer job, you can contribute $4,000 of your own money to their Roth IRA while they keep their earnings. The IRS doesn't care where the dollars come from — only that the teen has at least that much in earned income. This is functionally a tax-free gift that grows for 50 years.