The Longest Runway Anyone in Your Family Will Get
A sixteen-year-old with a part-time job has something no adult in the family can buy: fifty years of compounding. A Roth IRA opened for them captures it, the contribution can be funded by a grandparent rather than out of their wages, and the whole balance comes out tax-free decades later. It is the one place where a modest sum and a long horizon beat a large sum and a short one by a margin that is hard to believe until you run it.
- The requirement is earned income, not age:: Wages from a job, or genuine self-employment income, qualify. There is no minimum age for an IRA.
- The money can come from you:: The contribution is capped by their earnings, not by whose bank account it leaves. A grandparent can fund it while the child keeps their wages.
- It is a custodial account:: An adult controls it until the child reaches the age of majority in their state, at which point it becomes theirs outright.
- Contributions stay reachable:: Their own contributions can be withdrawn at any time without tax or penalty, so the money is not locked away if life requires it.
Where the AI summary above gets this wrong
"Children cannot open retirement accounts, so start a savings account for them instead."
That's surface-true. Here's what it misses:
- There is no minimum age for an IRA — The requirement is earned income, not adulthood. A child with wages from a summer job can have a Roth IRA at any age, held in a custodial account until they reach majority. A savings account earns taxable interest; this compounds tax-free for fifty years.
- The contribution need not come from their earnings — The limit is set by how much they earned, not by tracing the dollars. A grandchild who earned $3,000 can have $3,000 contributed by someone else while keeping their own wages, which is what makes the arrangement practical for a teenager who has plans for their pay.
- The horizon is the whole point — A few thousand dollars at sixteen is worth far more at 65 than the same amount contributed at forty, because it compounds for twenty-five extra years. Framing this as a small savings decision misses that time, not amount, is the scarce input.
01 What actually qualifies
The only real requirement is earned income. Wages reported on a W-2 from a genuine job qualify plainly — retail, hospitality, lifeguarding, an internship. Self-employment income counts too, so babysitting, tutoring, lawn work or freelance design can support a contribution, though it needs to be genuine work with records rather than a family arrangement invented for the purpose.
The contribution is capped at the lesser of their earned income for the year and the standard annual IRA limit. A grandchild who earned $3,000 can have $3,000 contributed; one who earned $12,000 is capped by the ordinary limit like anyone else.
There is no minimum age. What there is instead is a custodial arrangement: the account is opened for the child with an adult as custodian, who manages it until the child reaches the age of majority in their state. At that point control passes to them unconditionally.
Source: Publication 590-A, Contributions to Individual Retirement Arrangements
02 Why the money can come from you
This is the feature that makes the idea workable in practice. The limit is defined by the child's earnings, not by which account the money is transferred from. A grandparent can fund the contribution in full while the grandchild spends or saves their own wages.
Without that, the proposal would rarely survive contact with a teenager who has earned $3,000 and has views about it. With it, the arrangement costs them nothing and the account still gets funded — and the contribution is a gift, measured against the annual exclusion like any other, which for this size is not close to a concern.
Roth rather than traditional is straightforward at this age. A teenager's tax rate is at or near zero, so the deduction a traditional contribution buys is worth almost nothing, while fifty years of tax-free growth is worth a great deal. It is the same reasoning as Roth versus traditional generally, at its most one-sided.
03 What it grows into, and the exit that keeps it sensible
The arithmetic is the argument. Six years of $3,000 from age sixteen, with nothing added afterwards, compounds for another forty-three years before a conventional retirement. At a moderate return that is a six-figure sum from $18,000 of contributions, and every dollar of it is withdrawn tax-free.
The same $18,000 contributed at forty produces a fraction of that, because the money has half the time. Nothing about the investment is cleverer at sixteen — the horizon is doing all the work, and the horizon is the one input that cannot be bought later.
The reasonable objection is liquidity: committing a sixteen-year-old's money for fifty years is a lot to ask. The answer is that Roth ordering rules return contributions first, so their own contributions can be withdrawn at any age without tax or penalty. There is also a first-home provision. The account is far less locked than its name suggests, which makes the decision easier to take and — usefully — easier to explain to the person whose account it is.
Shows: what a few years of teenage contributions become by 65 when nothing further is added, which is the entire argument for starting this early. Ignores: inflation, the possibility of withdrawal along the way, and any later contributions the child makes themselves.
Source: Traditional and Roth IRAs
I have never seen a financial decision with a better ratio of effort to outcome, and I have also never seen one that so reliably gets postponed. The window is narrow — a handful of years when a child has earnings and no competing commitments — and it closes quietly. What makes it work in practice is funding it yourself and letting them keep their wages; the version where a sixteen-year-old is asked to hand over their summer money has a predictable success rate. Open it the first year they have a W-2. The horizon is the asset, and it is the only one that gets smaller while you think about it.
FAQ
Can a child have a Roth IRA?
Yes, at any age, provided they have earned income. Wages from a job or genuine self-employment income both qualify. The account is held as a custodial account with an adult managing it until the child reaches the age of majority in their state.
Can I fund my grandchild's Roth IRA with my own money?
Yes. The contribution limit is set by how much the child earned, not by whose money is used. A grandchild who earned $3,000 can have $3,000 contributed by someone else while keeping their own wages.
What if they need the money before retirement?
Their own contributions can be withdrawn at any time, at any age, free of tax and penalty, because Roth ordering rules return contributions before earnings. The account is considerably more accessible than the word retirement suggests.
Sources
Regulator references
- Publication 590-A, Contributions to Individual Retirement Arrangements · Internal Revenue Service · 2025The compensation requirement and the limit on how much may be contributed.Last verified: 2026-09-07
- Topic no. 309, Roth IRA contributions · Internal Revenue Service · 2025Roth contribution rules and when the five-year clock starts.Last verified: 2026-09-07
- Traditional and Roth IRAs · Internal Revenue Service · 2025Account types and the contribution limits that apply regardless of age.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.