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Roth IRAs Are Powerful Moneymakers for Kids

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Working at a tender age is an American tradition. What isn’t so traditional is the notion of kids contributing to their own IRA, especially a Roth IRA. But it should be a tradition, because it’s a really good idea.

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

Roth IRA Contribution Basics 

The only federal-income-tax-law requirement for a child to make an annual Roth IRA contribution is to have enough earned income during the year to cover the contribution. Age is completely irrelevant.

So if a child earns some cash from a summer job or part-time work after school, he or she is entitled to make a Roth contribution for that year.

For the 2024 tax year, your working child can contribute the lesser of

  • his or her earned income for the year, or

  • $7,000.

While the same $7,000 contribution limit applies equally to Roth IRAs and traditional IRAs, the Roth option is usually better for kids.

Key point. A contribution for your child’s 2023 tax year can be made as late as April 15, 2024. So, there’s still time for that. The 2023 contribution limit is slightly less: lessor of earned income for the year or $6,500.

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

By making Roth contributions for a few years during the teenage years your kid can potentially accumulate quite a bit of money by retirement age.

But realistically, most kids won’t be willing to contribute the $7,000 annual maximum even when they have enough earnings to do so.

Say the child contributes $2,500 at the end of each of the four years. Assuming a 5 percent return, the Roth account would be worth about $82,000 in 45 years. Assuming an 8 percent return, the account value jumps to a whopping $259,000. Wow!

Parents can even help gift funds for the contribution to further help with household tax optimization.

You get the idea. With relatively modest annual contributions for just a few years, Roth IRAs can be worth eye-popping amounts by the time your “kid” approaches retirement age.

If you would like to discuss earned income and IRS options for your child, please reach out!


This is for informational purposes only and should not be construed as tax, legal, or financial advice. While this information has been provided using reliable sources, the information is subject to change. It is recommended that you seek legal counsel prior to filing.


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