Is your child working this summer? Start thinking about his or her retirement!

by Morgan Stone | Jul 16, 2018

Summer time often means jobs for your kids.  Whether working as a camp counselor, life guard, a summer internship, or waiting tables at a resort, earned income at a young age provides a unique and profitable savings opportunity. 

Consider opening and funding a Roth IRA for your kids! As long as they have verifiable earned income (usually through a W2 or 1099), you can fund up to the lesser of their earned income or $5500 in a Roth IRA for each child with earned income.

Funds grow tax free in a Roth IRA, and if they wait until 59.5, distributions are tax free.  There are several exceptions to this, so consult with your financial advisor or tax professional.

The payoff could be huge! For example, if you made a single $3,000 contribution to your 15 year old’s Roth IRA, that one contribution could grow to over $140,000 over the next 50 years, assuming an 8% return.  Just think about the possibilities with jobs and Roth IRA contributions over several summers!

If your child is under 18, you will need to open a Custodial Roth IRA on their behalf. The contribution does not have to come from the money your child earns. You can fund the account directly on their behalf. Any funds you contribute will count towards your annual exclusion amount (the amount you can gift each year without gift tax consequences).

This is a great way to introduce your children to investing.  You could start out with purchasing a broadly diversified index fund.  Or, add a little fun to the mix and buy some stock in a company they are familiar with, and go over the account statements with them.

Eligibility to contribute to Roth IRAs is determined by the taxpayer’s income.  For example, if you are Married Filing Jointly, your eligibility to contribute to a Roth IRA phases out at between $189,000 to $199,000 of income.  Often, as you progress through your professional career, you find yourself phased out of Roth IRA eligibility due to your income exceeding thresholds…. A good problem to have!  

Your children, even if under 18, will be on their own tax filing status.  If they are eventually phased out of eligibility due to higher income later in life (as a result of superior parenting of course!), they will be forever thankful these Roth IRAs were funded early on in their lives, while they were eligible. 

Want to learn more?  Contact Morgan Stone or Kacie Swartz at or 512-469-9152.  Have a great summer!