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.

What starting age is worth

The same $2,000 is worth roughly five times more contributed at 16 than at 35, and more than ten times more than at 45. That's the entire argument in one chart. A teenager's contribution isn't competing with an adult's on size — it's competing on time, and time wins by a landslide. This is also why the account matters more than the amount: $500 in a teen's Roth beats $2,000 sitting in a checking account waiting for the 'right time,' and the gap widens every single year the money stays invested.

What counts as earned income (and what doesn't)

• Counts: W-2 wages from any employer — the grocery store, the pool, the movie theater. This is the cleanest case because the paperwork is automatic.
• Counts: documented self-employment — babysitting, lawn mowing, tutoring, reselling — as long as it's real work at market rates, tracked and reported on a tax return.
• Counts: wages from a legitimate family business, paid at a reasonable rate for real work, with payroll records. Paying your 15-year-old to run the business's social media is fine; paying a toddler as a 'consultant' is audit bait.
• Doesn't count: allowance, birthday money, investment income, or gifts. Generosity isn't earned income no matter how it's labeled.
• The practical rule: if the income was real enough to report to the IRS, it's real enough to back a Roth contribution — and reporting it is exactly what creates the proof.

Opening the account: a 15-minute project

1. 1
   Confirm the earned income

   Add up the year's W-2 wages or logged self-employment earnings. The contribution ceiling is that number or the annual IRA limit, whichever is smaller.

2. 2
   Open a custodial Roth IRA

   Fidelity, Schwab, and Vanguard all do this online in about 15 minutes with no minimums. A parent opens it and manages it until the age of majority.

3. 3
   Fund it — from anyone's pocket

   The teen's savings, a parent's match, a grandparent's gift: the IRS only checks that contributions don't exceed the teen's earned income for the year.

4. 4
   Invest it immediately

   Contributions sit in cash until you buy something. One total-market index fund, 100% of the balance, dividend reinvestment turned on.

5. 5
   Repeat every year there's income

   Make the contribution a January ritual tied to the W-2 arriving. Five or six repetitions and the habit — and six figures of future money — is locked in.

Why Roth beats traditional for a teenager

A traditional IRA gives you a tax deduction now in exchange for paying income tax on withdrawals later. That trade is great for a high earner in their peak years — and nearly worthless for a teenager who owes zero income tax to begin with. A teen earning $5,000 a summer is in the 0% bracket: a deduction saves them nothing, while the Roth's deal — pay today's rate (zero) and never pay tax on the growth again — is the single best tax arbitrage in the entire code. There is no future in which today's 0% rate wasn't the right time to pay.

The most common objection from teens themselves deserves a straight answer: 'why would I lock money away for 50 years when I need a car in two?' The honest response is that this isn't either/or — it's a split. A teen earning $4,000 a summer might route $3,000 to the car fund and $1,000 to the Roth, especially if a parent is willing to fund the Roth side as a match. The car fund buys mobility at 17; the Roth contribution, left alone, buys something stranger and larger — roughly $58,000 of age-65 money per $1,000 contributed at 16, at a 9% average return. Frame it as buying two things with one summer, and the resistance usually evaporates.

One last reframe for the hesitant parent: contributions (not earnings) can be withdrawn from a Roth at any time, tax- and penalty-free. This isn't money locked in a vault until 2070 — it's money with a strong incentive to stay put and a fire escape if life truly demands it. The realistic worst case is that your kid retrieves their contributions someday; the realistic best case is a six-figure head start on retirement purchased for the price of a used laptop. Open the account, fund whatever this year's paychecks allow, buy the index fund, and let five decades do the rest.