WHY SHOULD A TEEN WORRY ABOUT SAVING FOR RETIREMENT?
Let us be clear, all people should save for retirement. It is part of your financial responsibility to save for your future. If you make it to retirement age social security will not be enough to meet your needs. Do you want to just get by? Of course not! Retirement should be fun, and you should be fully ready to enjoy it in all its glory. What that means is you must start preparing many years before the time for retirement comes. But what does all of this have to do with your teen? I believe that it is never too young to start teaching your children to be financially responsible. Learning how to manage their money and use it wisely is one of the most important skills for them to master. And saving for retirement with a ROTH IRA for teens can start as early as when your child gets their first job.
WHAT IS A ROTH IRA?
An IRA is short for an individual retirement account. A Roth IRA (per Investopedia) is an individual retirement account (IRA) that allows qualified withdrawals on a tax-free basis provided certain conditions are satisfied. Basically, you deposit money into your Roth IRA, and it grows tax-free, and you can start withdrawing at age 59 ½. There are a few stipulations, such as owning the account for five years before withdrawing. Before opening a Roth, you should read all the rules. But the big picture is that it is a GREAT WAY to save for retirement. And the earlier you start, the better (cue the teens). Many years + tax-free growth on your money = a great retirement!
WHY SHOULD YOUR THIS TYPE OF ACCOUNT?
You should help your teen to start a Roth IRA because TIME is on their side! If a teen starts a part-time job at age 16 and starts contributing to a Roth, that gives them approximately 43 years for that money to grow. Wow, that is an amazing amount of time for your money to grow! There is a wonderful Dave Ramsey article that demonstrates just how much that this money could grow. Check out the chart and just under the chart and you will see just how much that could be accomplished with a Roth starting in the teen years.
https://www.daveramsey.com/blog/investing-for-kids
HOW TO OPEN A ROTH IRA FOR YOUR TEEN
How do you open a Roth IRA for your teen? There are a couple of different ways to achieve this, and both are simple. One place to open a Roth IRA is at your local bank. The second place to open a Roth IRA is at an investment firm. There are many banks and investment firms out there so you will need to choose which one that you want. Children under the age of 18 will need a custodial account. The process is very easy to get started for your teen with the assistance of a parent. And the lessons that your teen will gain are a bonus! They learn about managing money, saving for the future, investing, finance, etc. You really cannot go wrong with these lessons.
WHAT ARE THE RULES
There are several rules to qualify for a Roth IRA for teens. The first rule of eligibility for a Roth IRA is having earned income. So long as your teen has earned income, they are eligible for a Roth. Some of the other rules include – having to make under a certain amount of money paid per year (not a problem for a teen), a limit on what you can deposit each year (currently $6,000), and it would need to be kept in the account for a minimum of five years and age 59 ½ to withdraw. Most of these are not issues for young investors because their income would not reach any of those thresholds. And the deposit limit of $6,000 is just the top limit for the year, you can put in amounts under that.
The following video by CNBC demonstrates the rules to a Roth IRA for teens, as well as the benefits and drawbacks. The contribution limit is higher now in 2021 (the video was made in 2018), but is is still a great summary of the Roth IRA for teens:
ADULTS CAN CONTRIBUTE TO THEIR CHILD’S ROTH IRA
With a teen getting a first job, they are just learning about banking, working, taxes, and all the things that come with earning an income, they are going to need a parent’s help to understand it all. Same with a Roth IRA, they will need your assistance to get this set up and to understand the benefits of doing this and they may have to assist because it will be a custodial account (due to their age). Also, with teens getting a job they are going to want to keep those paychecks. But wait…parents can contribute for them! If the child has earned income, the parent can contribute to a Roth for the child. What a great gift to give your teen! Does a grandparent or other relative want to contribute to your child’s future? This is a wonderful option for them to aid in your child’s future!
A ROTH IRA CAN SET YOUR CHILD UP FOR FUTURE FINANCIAL STABILITY
In conclusion, Roth IRAs are wonderful investments and there is no better time for your child to start saving than when they are a teen with a first job. While your child may not be able to envision why you need to save for retirement, you as a parent know that it is a good thing for them to do and can set them up for a wonderful future. If your child is responsible, and not able to invest because they need the limited funds that a first job provides, consider making the contributions for your child (because you understand how amazing this can be, even if they do not).
The process is easy, and the benefits are great, so why not get this process of opening a Roth IRA started with your child today? A Roth IRA for kids can set your child up for a more secure future. Do a little research on which bank or investment company is your preference (there are many to choose from), and get this process started today. TIME is on your side (and your teens)!
GET OUT THERE WITH YOUR WORKING TEEN AND OPEN A ROTH IRA TODAY!
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Stacee says
I heard the earlier you start IRA’s the better I never thought about starting as a teenager. That’s. Great idea!
Amanda says
Love this so much! Definitely so important these days to start this early. My son is only a year and a half but we already started him a savings account so will definitely look into this as well when he’s older. Thanks for sharing!
Candace says
I didn’t consider teens getting a Roth IRA. This is a great reference for the future since my kiddos are still young kids. Thanks!
Dee | Grammy's Grid says
Good to know info!! Thanks so much for linking up with me at the Unlimited Link Party 29. Pinned!