Start Early, so that Time Does the Heavy Lifting 👶
Parents spend years saving for braces, sports, college, and first cars. But there’s another financial gift that’s often overlooked because it sounds like it belongs decades in the future: a Roth IRA.
Most people think retirement accounts are for adults with careers. They’re not.
If your child has earned income, like from that summer job they’ve been slaving away at for a couple of months, they may already qualify to begin building tax-free wealth that could ultimately be worth more than a million dollars.
The remarkable part isn’t how much you contribute.
It’s how early you start.
Why Starting Young Changes Everything 🐣
Compounding rewards time more than dollars.
Consider this example:
Invest $3,000 into a Roth IRA for a child early in life. If it earns returns similar to the historical long-term stock market average and remains invested until retirement, that single contribution could grow into roughly $1.5 million completely tax-free.
That’s the power of giving investments 60 or more years to grow.
Most adults don’t have that advantage.
Kids do.
What Is a Roth IRA?
A Roth IRA is an Individual Retirement Account funded with money that’s already been taxed.
The tradeoff is extraordinary:
- Investments grow tax-free.
- Qualified withdrawals in retirement are tax-free.
- There are no taxes owed on decades of investment growth.
For someone with an exceptionally long investing horizon, it’s one of the most powerful accounts available.
The Catch: Your Child Needs Earned Income
You can’t simply open a Roth IRA and start depositing money because your child exists.
To contribute, they must have earned income.
For 2026, contributions are limited to the lesser of:
- $7,500
- Their total earned income for the year
If your teenager earns $3,200 lifeguarding over the summer, the maximum Roth IRA contribution is $3,200.
The good news?
The money deposited doesn’t actually have to come from the child.
Parents Can Fund the Roth IRA 🏧
This surprises many families.
Imagine your teenager earns $3,000 over the summer and spends every dollar on gas, clothes, and hanging out with friends.
That’s okay.
As long as they earned the income, a parent or grandparent can contribute up to that same $3,000 into the Roth IRA.
Many families even use matching contributions as an incentive:
“For every dollar you save, I’ll match it.”
Or parents simply make the entire contribution as an additional gift.
Either approach works.
How Younger Children Can Qualify
Teenagers with summer jobs are the obvious candidates.
But younger children may qualify too.
Some legitimate examples include:
Working for a Family Business
If you own a business, your child can perform legitimate work you would otherwise pay someone to do.
Examples include:
- Office organization
- Cleaning workspaces
- Filing paperwork
- Administrative tasks
- Video editing
- Social media assistance
- Photography
- Greeting customers
The work must be real.
The pay must be reasonable.
And you should keep proper documentation.
Other Legitimate Paid Work 🪵🪓
Neighborhood jobs may also qualify, including:
- Lawn mowing
- Landscaping
- Babysitting
- Pet sitting
- Tutoring
The key is that the work is genuine and compensation reflects the work performed.
Keep Good Records 📋
If you’re paying your child yourself, treat it like real employment.
That means:
- Document the work performed.
- Keep records of hours or completed tasks.
- Transfer money through actual bank accounts rather than handing over cash.
- Pay reasonable amounts for legitimate work.
Good documentation makes everything much easier if questions ever arise.
What If Your Child Is Too Young to Work?
You don’t have to give up on the strategy.
A useful workaround is to begin saving in a 529 college savings plan.
The money can grow tax-free while your child is young.
Later, once they begin earning income, current rules allow certain unused 529 funds to be rolled into a Roth IRA, subject to IRS requirements and annual contribution limits.
It’s not a substitute for earned income—but it allows families to start investing long before a first job arrives.
Aren’t Retirement Accounts Too Restrictive?
Many parents hesitate because retirement feels impossibly far away.
Fortunately, Roth IRAs offer more flexibility than many realize.
For example:
- Original contributions (not earnings) can generally be withdrawn tax- and penalty-free.
- Certain education expenses may qualify for penalty exceptions on earnings.
Those features shouldn’t be viewed as reasons to raid the account—but they make a Roth IRA less restrictive than many people assume.
The real goal is to leave the money untouched and allow decades of compounding to work.
The Bigger Benefit Isn’t Just Money
The account itself creates opportunities for conversations many families never have.
Children begin asking:
- What is investing?
- Why am I saving?
- How do taxes work?
- What happens if I leave money invested?
Those conversations often matter just as much as the investment returns.
Financial literacy becomes tangible because it’s tied to their own money.
👉Five Minute Task
Opening a custodial Roth IRA is surprisingly simple.
At firms like Fidelity, Vanguard, or Schwab, the process typically takes only a few minutes.
Once your child has earned income:
- Open a custodial Roth IRA.
- Verify their earned income for the year.
- Contribute up to that amount (or the annual IRS limit, whichever is lower).
- Invest the money rather than leaving it in cash.
That’s it.
The hardest part isn’t opening the account.
It’s recognizing just how valuable a few thousand dollars can become when given an extra 50 or 60 years to grow.
Parents often worry about helping their children buy their first home or pay for college.
Helping them retire comfortably before they’ve even graduated high school might be one of the smartest financial gifts they’ll ever receive.
Find out more about Mike at https://www.mortonfinancialadvice.com and connect athttps://www.linkedin.com/in/mwsmorton/
