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Can my 16-year-old make a Roth IRA contribution?

Or is there a better option given my son's age?

Feb 21, 2012 by Randy from Dublin, OH in  |  Flag
6 Answers  |  8 Followers
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3 votes
Jim Blankenship Level 17

In addition to Eve's comments, a further benefit of a Roth IRA for your child's savings is that retirement plans (including a Roth IRA) are not included in FAFSA calculations for college financial aid. This can be a very big deal if your child is "on the edge" of being eligible for financial aid. If the money was saved in a standard savings account it would be counted in full as an available resource for college expenses, whereas in a retirement plan it is not counted as a resource at all.

When you add in the ability for your child to withdraw the contribution amounts at any time for any reason in the future (although you would want to discourage this) the Roth IRA is an excellent savings plan with no appreciable downside.

Topping it all is the fact that, if your child has earned less than the minimum for taxability for the year (generally $5,800 as a dependent for 2011) then this money and any growth or appreciation goes untaxed FOREVER if it is placed in a Roth IRA and left there until retirement (under current law).


2 Comments   |  Flag   |  Feb 21, 2012 from New Berlin, IL

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Flag |  Jan 27, 2018

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Dear Randy, Your 16-year old can make a Roth IRA contribution if she/he has reported earned income in e.g. 2011 (you have until 4/15/12) or 2012. The maximum contribution per year is 5K Roth IRAs beat any other form of savings since returns above principal grow tax-free forever. However, the sticking point is having verifiable earned income.

Comment   |  Flag   |  Feb 21, 2012 from Berkeley Heights, NJ

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Dear Randy - To clarify, your son's ROTH or IRA contribution limit is the lesser of his earned income for the year and $5,000. Under most scenarios, the ROTH is a better option because his time horizon is long, his tax rate today is probably low (and unlikely to be lower at retirement), and the compounding effect is likely to be significant. In addition, it is a good idea to start the clock on a ROTH account as early as possible because of the 5 year minimum holding period required before taking qualified distributions of investment returns.

Comment   |  Flag   |  Feb 21, 2012 from San Francisco, CA

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Randy, I agree with Eve that earned income is required and that a Roth IRA is more likely a better choice than a Traditional IRA for your 16 year old. This assumes his/her tax rate today will be lower than his/her tax rate upon withdrawal. (More than plausible given she/he is only 16.) Were this not the case then a traditional IRA contribution maybe the better choice.

Comment   |  Flag   |  Feb 21, 2012 from Point Pleasant Beach, NJ

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The other professional answers outline the rules of using a Roth account for your son and I agree with them. A second option might be a 529 Educational Savings account. This will allow him to save funds for college and grow the funds tax free just like a Roth. I don't know his plans, but with the cost of college increasing and retirement years being 50 years away, this might help out! Good luck!

Rob Riedl Endowment Wealth Management

Comment   |  Flag   |  Dec 08, 2013 from Milwaukee, WI

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Steve Casull Level 13

Father of 16 year old. First of all, my industry tends to use jargon, when real speak is more efficient. Any earned income is any money your child earns. Even if YOU are their employer. You just have to make a record that said child made X$ for X service. Easy. And I respectfully disagree with the suggestion of a 529 Plan. Unless your kid is putting in more than $25K, which at the risk of sounding REAL isn't going to happen. And the other reality is some kids, actually most when looking at trends, won't go to college, and will be just fine AND HAPPY not doing so. Go ask a group of college grads if they went into careers their degree was oriented towards. The answer is one of the expensive hypocrisies of life in our society. Be a parent! Know your kids! Encourage their pursuit towards their sincere interests with a measure of reality. If your kid is bad at math, chances are NASA isn't a target. I have ROTH IRA's for each of my kids with a planned contribution ceiling of $10K and expecting another $10K in tax free earnings. This isn't for their retirement, there is time for that. Get them through the first hurdles of life first. The first $10K will go towards college, and the next will go towards a down payment for a house. Unless your kid is making over $30K a year from 1-18 yrs of age, anything else isn't realistic. I dislike analogies of my career to gambling, but Play the odds. Play the realities.

Comment   |  Flag   |  Feb 09, 2015 from South Jordan, UT

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