For many teenagers, summer jobs have already come and gone, and those paychecks may already be sitting in a checking account or tucked away in a savings account. Before those earnings disappear into everyday spending, it's worth considering another possibility.
With the right strategy, those same earnings could become the foundation of your teen's investment portfolio for decades to come.
It sounds unbelievable, but that's exactly why choosing to invest part of a summer paycheck in a Roth IRA can become one of the smartest financial decisions a teenager ever makes.
When most people hear "Roth IRA," they picture adults well into their careers saving for retirement.
But teenagers have something many adults wish they could buy back: Time.
Investing isn't just about how much money you save. It's about how long your money has the potential to grow.
Imagine two investors:
Assuming both investments earn an average annual return of 8%, Emma's investment could grow to roughly $180,000 by age 65, while Jack's grows to about $83,000.
Emma didn't invest more money.
She simply gave her money ten additional years to compound.
That's the remarkable power of starting early.
This example is hypothetical and assumes a constant rate of return. Actual investment results will vary, and investing involves risk, including possible loss of principal.
A Roth IRA is a retirement account designed to reward long-term investing.
Here's what makes it unique:
In other words, you pay taxes on the money today, while you're likely in one of the lowest tax brackets you'll ever have, and potentially avoid paying taxes on decades of future investment growth.
Absolutely.
If a teenager has earned income, they may contribute to a Roth IRA.
That includes income earned from jobs such as:
For 2026, a teenager may contribute the lesser of:
If the child is under the age of majority (which varies by state), a parent or legal guardian can open a custodial Roth IRA on the child's behalf. Once the child reaches the age of majority, ownership transfers to them.
A common misconception is that the money contributed to a Roth IRA must be the exact paycheck the teenager earned.
That's not the case.
Under IRS rules, the teenager must have sufficient earned income, but the dollars contributed to the Roth IRA do not have to come directly from the teenager's paycheck. As long as the teenager has earned the income and total contributions do not exceed their earned income or the annual contribution limit, parents or grandparents may provide the funds for the contribution.
For example, if a teenager earns $4,000 over the summer, a parent or grandparent may contribute up to $4,000 to the teenager's Roth IRA while the teenager keeps and spends the paycheck however they choose.
Many families view this as a "matching program." A teenager learns the value of working, while parents or grandparents reward that effort by helping fund long-term savings. The teenager enjoys their paychecks today, while their retirement savings begin decades earlier than they otherwise might.
Funding a Roth IRA for your teenager can be an extraordinary gift, but the greatest value isn't just the dollars invested. It's the conversation that comes with it. This[KS1] important step allows parents to talk with their teen about why they are doing it. Showing them how investing works and the power of long term compounding potential can be a useful life lesson while also c These life lessons may prove even more valuable than the account balance down the road.
Many families even review the account together once or twice a year, using it as an opportunity to teach investing, long-term thinking, and financial responsibility.
Parents often worry that saving too much could hurt a student's eligibility for financial aid.
Fortunately, a Roth IRA is generally one of the most favorable places for a teenager to save.
Assets held inside a Roth IRA generally are not counted as student assets on the FAFSA (Free Application for Federal Student Aid) while they remain in the account. This can make a Roth IRA more advantageous than saving the same dollars in a taxable investment account. While future withdrawals may affect financial aid calculations under certain aid methodologies, retirement accounts generally receive favorable treatment.
As always, families should consider their own circumstances and consult a financial professional if they have questions.
Opening a Roth IRA isn't just about retirement.
It's about helping a young person build lifelong financial habits.
A teenager who learns to save, invest, and understand compound growth develops skills that can influence every major financial decision they'll make for decades to come.
Learning these lessons at 16 can be far more valuable than learning them at 36.
Very few financial decisions become easier simply by waiting.
Opening a Roth IRA is one of the rare opportunities where getting started early can make an extraordinary difference.
A single summer job may not seem life-changing.
But the investment habits it creates, and the decades of potential tax-free growth it unlocks, just might be.
At Evermay Wealth, we enjoy helping families prepare the next generation for financial success. Whether you're considering opening a Roth IRA for a child or grandchild, deciding how much to contribute, or simply learning more about the rules, we're happy to help.
Sometimes the best investment you make isn't for yourself.
It's helping the next generation get started.
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Evermay Wealth Management, LLC (“Evermay Wealth”) is a registered investment adviser. For more information about Evermay Wealth’s advisory services, please request a free copy of our Firm Brochure.
Past performance is no guarantee of future results. All investments involve risk, including loss of the principal amount invested. Diversification and asset allocation strategies do not ensure a profit and do not protect against a loss, especially during periods of market downturns.
This information is educational in nature, and not as a recommendation of any particular investment strategy. Given various factors, including changing market conditions, the views and opinions expressed are subject to change.
Statements herein reflect opinions regarding future financial or economic performance. Such statements are “forward-looking statements” based on various assumptions, which may not prove to be correct. Certain information contained herein was derived from third party sources as indicated. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of the information presented.
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