A Custodial Roth IRA Turns Your Kid’s First Job Into a Head Start
Just the Tip:
Any child with earned income from a job, babysitting, or mowing lawns can have a custodial Roth IRA, and you can contribute whatever they earned, up to the annual IRA limit. Money invested at 15 has half a century to compound tax-free. Open one the first summer your kid earns a paycheck.
The math is the whole argument. A single $1,000 contribution at 15 grows to roughly $29,000 by age 65 at a 7% average annual return, and because it’s a Roth, every dollar of that growth comes out tax-free.
Most parents miss the best part. The contribution doesn’t have to come from your kid’s pocket. The IRS only requires that the child have earned income for the year. The money itself can come from anyone. Run it like an employer match. Your teen keeps the paycheck, and you contribute a matching amount to the Roth, capped at what they actually earned or the annual IRA limit, whichever is less.
Earned income is the gatekeeper, and it’s broader than a W-2. Formal jobs count, but so does self-employment income from babysitting, mowing lawns, or tutoring. Allowance and birthday money don’t. For informal work, keep a simple log of dates, payers, and amounts in case the IRS ever asks.
Opening the account takes about 15 minutes at most major brokerages, with no account fees or minimums. You manage the account as custodian until your child reaches the age of majority, typically 18 to 21 depending on your state, when it becomes a regular Roth in their name. Put the money in a broad, low-cost index fund instead of letting it sit in cash. The long runway is the entire advantage, and cash wastes it. If plans change, contributions can come back out anytime without taxes or penalties. Only the earnings have to stay put until retirement.
A summer of mowing lawns won’t make your kid rich. Starting the compounding clock at 15 instead of 25 might.
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