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The Secret to Saving for Retirement: Start Before You’re 20

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David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
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Chelsea Shaver started saving for retirement in eighth grade. 

A certified beekeeper, she tended four hives along with her mom in their backyard in Charlotte, N.C. She processed the honey, filled and labeled jars, and made local deliveries by bicycle. Rather than spend the nearly $5,000 she netted, Chelsea, now 14 years old, used the money to fund a Roth IRA, where it can grow tax-free over her lifetime and beyond. 


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While many Americans haven’t saved for retirement at all, some are getting a really early start, with the help of parents and grandparents and financial advisers. Chelsea’s mother, Jo Shaver, and her financial planner, Leah Maybry, are behind the kid Roth IRA idea. Her brothers have Roth IRAs, too, funded with earnings from more-traditional teenage jobs in retail and as a camp counselor.

“It grows forever tax-free. It’s a no-brainer,” said Maybry.

Among the options for those who are younger, a Roth IRA makes sense because of the tax advantages. Once a child earns income, they are eligible to open up an individual retirement account. By making it a Roth IRA, children can get decades of tax-free compounding, giving them the potential to build a meaningful nest egg with little money down.

A traditional pretax IRA, which offers an upfront tax break, is of little or no value to a teenager. A Roth IRA makes sense when your present earnings are likely lower than what you will earn in retirement. Unlike a traditional IRA, contributions to a Roth are made after taxes. Teens are ideal candidates, since most pay very low or no taxes. 

Roth IRAs for teens are gaining in popularity. The average age of those with custodial Roth IRAs, where an adult sets up the account with the child as beneficiary, is 13.7 years, Fidelity Investments said. The number of these accounts in June grew 28% year-over-year.

How to open a Roth IRA

If you’re under 18, you need an adult to act as custodian and control the account. There is some paperwork to transfer it to your name later, typically when you reach 18 or 21, depending on your state.

John Becker, of St. James, Minn., helped his youngest daughter, Ellie, open a custodial Roth IRA at Vanguard with summer-job earnings working at a local marina on the dock crew before college. He decided not to help fund it but to provide investment advice, recommending she stick to index funds for the long term. (She has a Robinhood account for short-term savings and learning the markets.)

Now she is a junior in college and using money earned at a construction-management summer job to make Roth IRA contributions for 2023. “This is money she’s not saving to buy a new car or fund a vacation. This is long haul. You have to have that mentality,” Becker said.

Earnings from part-time work, summer jobs, paid internships, self-employment, even a parent’s business can all count as income for purposes of how much you can contribute to a Roth IRA. Allowances and birthday gifts don’t count.

The maximum contribution for 2023 is the amount of your earned income up to $6,500. You have to have earned income in the year for which the contribution is made, and income limits apply. 

If you’re 18, you can open a Roth IRA on your own. Justin Purves joined the military when he was 18 and contributed to the federal retirement-savings plan to get the government match for the four years he served. He also opened a Roth IRA at E-Trade so he would have more investment choices.

“I wanted to prepare for the future,” he said. Now he’s 26, married, a dad, and a third-year law student. His Roth IRA is worth about $35,000.

Put the children on the payroll

Sean Caldwell, a financial planner in Clearwater, Fla., opened up Roth IRAs for all four of his children when they were in elementary school. They worked for him, doing office tasks, such as shredding papers and mailing marketing materials.

When they got older and got other part-time jobs, he started making a parental match so they would have spending money but still put as much as possible in the Roth accounts.

His 16-year-old son, Jacob, works part time at a Publix supermarket and expects to contribute close to the maximum for 2023.

Parents or teens might be wary of tying up their funds for decades, but Roth IRAs do come with an escape hatch: You can access contributions any time without penalty. Another rule lets you withdraw up to $10,000 of earnings tax and penalty-free for a first-time home purchase. 

Money in a student’s Roth IRA typically won’t affect their college-aid eligibility as long as they don’t make any withdrawals, said financial-aid expert Mark Kantrowitz.

Ask for a match

A Roth IRA can be a teaching moment for those who can afford to give money to their children or grandchildren. Matching contributions, as Caldwell does, can motivate children to earn and save more. 

When their oldest grandson, Andrew Glass, first had earned income working for Panera Bread at age 16, Paul and Karen Wolgemuth of Elizabethtown, Pa., made a proposition. They would contribute 85% of his earnings to a Roth as long as he was in school, if he contributed 15% of his earnings to the Roth, 10% to charity, and read Bill Bernstein’s book “If You Can: How Millennials Can Get Rich Slowly” each year. (The premise of the book is to save 15% of your salary and invest it in index funds for 30 or 40 years.)

Those types of conversations make the kid Roth IRA powerful, said James Luther, a senior wealth adviser at Schwab. “It’s a great way to pass on investment knowledge and a little wealth as well,” Luther said. Some families make the match for the full 100%, or split it 50-50.

The Wolgemuths and Glass have kept up the deal for the most part. Glass said he hasn’t reread the book. He’s now a senior at Cornell, considering law school, so the Wolgemuths might be doing three more years of matching.

“Hopefully we’ve encouraged good lifetime savings habits,” Paul Wolgemuth said.

Write to Ashlea Ebeling at ashlea.ebeling@wsj.com

David M. Brenner profile photo

David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
Schedule a Meeting