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Oftentimes teens with jobs don’t realize they are eligible to contribute to a Roth IRA (or traditional if you prefer). The laws are very simple regarding who can contribute and how much they can contribute.

A Roth IRA is a smart idea because the money in the account grows tax-free AND the withdrawals are tax-free as long as it’s after retirement.

Understanding Roth IRAs

To be eligible for a Roth IRA, teens need to earn income – that’s the only requirement. You don’t have to be a certain age, but the income contributed cannot be more than the amount earned for the year or $6,000 whichever is less.

Teens can work part-time. It can even be a simple summer job and teens don’t have to work year-round to contribute.

It’s important to know too that teens have until April 15, 2022 to contribute for tax year 2021.

Why Teens Should Contribute

The earlier anyone contributes the more money they’ll have in retirement. It all comes down to compound earnings. While teens can’t contribute more than $6,000 a year to their account, the extra years between when they contribute and when they retire can help their earnings grow tremendously.

Here’s a quick example. Your teen contributes $2,500 over the course of 4 years. At a 5% rate of return, the Roth account would have a value of approximately $82,000 in 45 years. If the rate of return was 8%, they would have a value of $259,000.

As you can see, even small contributions can really add up over the years. Even if your child contributes only a small amount, the compound earnings can come in real handy in their retirement years and you can be proud of the foundation you set.


If you would like to learn more about how your teen can contribute to an IRA and start saving for retirement now, contact us today!

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