What are the tax pros and cons of opening a Roth IRA for an older teen?

Westway12
Westway12 Member Posts: 1 Newcomer
edited December 2024 in Retirement Income

What are the tax pros and cons of opening a Roth IRA for an older teen? Or should the teen open their own if/when possible? And is there a better IRA than Roth for trying to get a kid started on saving/retirement?

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  • JulieS
    JulieS FreeTaxUSA Agent Posts: 14 Level 3
    Answer ✓

    Hi Westway12,

    A Roth IRA for a minor would still have the earnings requirement. This means the minor would have to have some form of earnings to contribute to the Roth IRA.

    If the minor has earnings, and based on each state's laws, there may be Roth IRAs you can assist your minor in opening and contributing to.

    For more detailed information about Roth IRAs, please see the following link:

    https://www.irs.gov/retirement-plans/roth-iras

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  • cdkirchn22
    cdkirchn22 Member Posts: 22 Level 5

    I think a Roth IRA is especially great for a teen just starting to save. They are arguably in their lowest tax bracket (maybe even $0!) and with a 40+ year time horizon, compound interest is on their side. Keep in mind that Roth IRA contributions can only be made from their earnings (i.e. contributions cannot exceed earnings if you were to match, for example). Another plus with Roth IRAs is that contributions can be withdrawn at any time if funds were suddenly needed for something (earnings cannot be withdrawn without a penalty).

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