Your Teen Earned Money This Summer: Open Their First Roth IRA

Yes, as long as they earned the money. A teen with earned income from a summer job, babysitting, lawn care, or a small business can open a custodial Roth IRA with a parent as the account holder [1]. There is no minimum age. The only hard rule is that the money has to come from work, not from an allowance or a birthday check.

Here is why this matters now. Your kid is working this summer anyway. With one extra step, that paycheck can start a retirement account decades before their friends even hear the word. And the lesson sticks better than any lecture, because it is their money and their account.

Two words: tax-free growth. Money in a Roth IRA grows without being taxed, and when your kid eventually withdraws it in retirement, they owe nothing on the gains [1]. A regular savings account pays a little interest and gets taxed along the way.

There is a second reason that fits teenagers perfectly. Time. A 15-year-old has roughly 50 years before traditional retirement age, and compounding rewards time more than any other factor. The same dollar does far more work for a teen than for a 45-year-old, simply because it has longer to grow. A working teen with a Roth IRA holds the one thing every adult investor wishes they had more of.

The limit is the lesser of two things: what they actually earned, or the annual IRS cap (which has sat around $7,000 in recent years). So if your kid earns $1,200 mowing lawns and babysitting, they can put up to $1,200 into the Roth, not a penny more.

Here is the part parents love. The money does not have to be the exact dollars they earned. If your teen wants to keep their summer cash for a phone or concert tickets, you or a grandparent can gift the contribution amount, as long as it does not exceed what the child earned. That means a teen can spend their summer money and still fund the account. The earnings just have to exist on paper.

Most of the big names do, and several have leaned hard into accounts for younger savers [2]. Charles Schwab, Fidelity, and Vanguard all offer custodial Roth IRAs with no account minimums and low-cost index funds inside. Apps like Acorns and Fidelity Youth aim at the same crowd with simpler interfaces.

A few things to compare before you pick. Look for no account fees, fractional shares so a small balance can still buy into a fund, and a clean mobile app your teen will actually open. Avoid anything that pushes individual stock picking to a 15-year-old. The goal here is a boring, low-cost index fund that grows quietly in the background, not a trading app that turns investing into a video game.

Setup usually takes about fifteen minutes online. You will need the child’s Social Security number, your own ID, and a way to fund the first contribution. Once the account is open, you pick one broad index fund, set the contribution, and you are done. Resist the temptation to keep tinkering. The best thing you can do for the balance over the next decade is leave it alone.

Let us run the numbers, because they are the whole point. Say your teen puts $1,000 into a Roth IRA at age 15 and never adds another dime. At a historical average return of about 7% a year, that single $1,000 grows to roughly $29,000 by age 65.

Now imagine they do it for four summers, contributing $1,000 each year from 15 to 18. That is $4,000 of their own money. Left alone at the same 7%, it can grow past $100,000 by retirement. Four summers of work. No further effort. That is the lesson that makes a teenager sit up. It is not about the dollars today. It is about what time does to them.

Returns are never guaranteed, and markets fall as well as rise, so be straight with your kid about that. But the direction of the lesson holds across any reasonable assumption. Drop the return to 5% and the single $1,000 still grows to more than $11,000 over 50 years. The exact figure matters less than the shape of the curve. Money invested young has a runway that money invested at 40 simply cannot match, and seeing that gap on paper does more than any speech.

Let them drive. Open the account together, but have your teen pick the fund, log the contribution, and check the balance once a quarter. Ownership is what makes it stick. A teen who logs into their own account feels like an investor. A teen who hears a speech about compound interest feels like they are in class.

You can frame the whole thing as a simple project with a goal, a number, and a few steps, which is also how young entrepreneurs learn to plan a small business. Resources like Foundra Kids offer structured money and business lessons that walk kids through this kind of goal-setting, and a plain notebook works too. The tool is less important than the habit. What you want is a kid who connects work to money to growth, and who saw it happen in an account with their name on it. That connection is worth more than the balance.

Keep it simple but keep it. You want a basic record of what your child earned and when, because the contribution cannot exceed earned income. For a formal job with a paycheck, that is easy: the pay stubs do the work.

For self-employment like babysitting, lawn care, or a lemonade stand, write it down. A simple log with dates, who paid, and how much is enough to back up the contribution if anyone ever asks. You do not need to file anything special for the contribution itself in most cases, but good records protect the account and teach your kid that real businesses track their income. When in doubt about taxes, a quick check with a tax professional is worth it.

The most common one is waiting. Parents tell themselves they will set it up next year, and next year the summer earnings are spent and forgotten. Open it while the income is fresh.

A close second is over-engineering the investments. Some parents turn the account into a stock-picking experiment and the kid loses money and interest in the same month. Keep it in a broad, low-cost index fund. The third mistake is treating it as the parent’s account. It is the child’s money and the child’s decisions, within reason. The less you hover, the more they learn. And do not forget the contribution ceiling: never put in more than the child actually earned, or you create a tax headache that erases the lesson.

A working teen can open a custodial Roth IRA in 2026, with contributions capped at whatever they earned (up to the annual IRS limit). The money can be gifted rather than the exact dollars they earned, so they can still spend their summer cash. Major providers like Schwab, Fidelity, and Vanguard offer these accounts with no minimums. A single $1,000 contribution at 15 can grow to roughly $29,000 by retirement at a 7% average. Keep records of earned income, choose a boring index fund, and let your teen own the account so the lesson lasts.

Does my teen need a regular job to qualify? No. Self-employment counts, including babysitting, lawn care, tutoring, or a small business, as long as you can document the earnings [1].

Who controls the account? A parent or guardian acts as custodian until the child reaches adulthood (18 or 21 depending on the state), then it converts to the child’s own Roth IRA.

Can grandparents fund it? Yes. Anyone can provide the contribution money, but the total still cannot exceed what the child earned that year.

What if my teen wants to spend their summer money? They can. The contribution just has to be no more than their earned income, so the funding dollars can come from a parent or grandparent gift.

Is a Roth IRA better than the new government teen accounts? They serve different purposes. A custodial Roth IRA offers tax-free retirement growth tied to earned income, which is hard to beat for a working teen [2]. Many families use more than one account.

1. U.S. News, Best Investment Accounts for Kids and Teens
2. Charles Schwab, Financial Literacy and Teens
3. Commerce Bank, How Can Teens Learn About Investing
4. Intuit, Financial Literacy for Teens and Young Adults