Legal Blog

The Weekly Scenario: Young Individuals Funding a Roth IRA

Question: My 16-year-old daughter has a part-time job at a clothing store. As the saying goes, though, she is spending more of her income than saving it. Is there a good way for her to save?

Answer: A great way for a child to get a jump start on her savings is to set up a Roth IRA as soon as she has earned income.

This could be a child’s summer job, whether working for a company or earning money mowing lawns, shoveling snow, or babysitting. In fact, the one item a child does not need to make Roth IRA contributions is the actual cash. So long as the child has earned income (i.e., income that can be reported on a tax return), anyone can make a Roth IRA contribution for the child. So if the child really is spending her income, her parents, grandparents, or anyone else can make a Roth contribution on her behalf.

Certainly it is easier if the child has a regular job, including a salary and an issued W-2. For the child who is babysitting or mowing lawns, there is no W-2. In this case, the only requirement is that the income has to be reported as self-employment income on a tax return.

Comment: Younger individuals may be more comfortable funding a Roth IRA (over a 401(k) plan) for the reason that contributions can be withdrawn at any time without any tax implications. While most don’t end up acting on that impulse, the simple fact that they know they can often means a higher comfort level with saving for retirement.



As always, if you have any questions or would like to learn more, please contact Steve Shane at or 301.575.0313.


Steve Shane Casual | 301.575.0313

Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.




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