How to Fund a Roth IRA for Your Teenager

Set up tax-free retirement savings for your teen using earned income from jobs, with contribution limits and investment basics.

  1. Confirm your teen has earned income. Your teenager needs earned income from a job — babysitting, lawn care, retail work, or any legitimate employment that generates a W-2 or 1099. Investment income, allowance, or gift money doesn't count. They can contribute up to 100% of their earned income or the annual IRA limit, whichever is smaller.
  2. Open a custodial Roth IRA account. Since minors can't open accounts themselves, you'll need a custodial Roth IRA. Most major brokerages offer these accounts with low or no minimum balances. The account transfers to your teen's control when they reach the age of majority in your state (typically 18 or 21).
  3. Fund the account within contribution limits. For 2026, the Roth IRA contribution limit is $7,000 per year. If your teen earned $3,000 from their summer job, they can contribute up to that $3,000. You can gift them the money to contribute, but the contribution amount can't exceed what they actually earned.
  4. Choose simple, diversified investments. Skip individual stocks and complex investments. Low-cost index funds that track the broad stock market are ideal for teenagers with decades until retirement. Target-date funds automatically adjust the investment mix as your teen ages, making them a hands-off option for long-term growth.
  5. Understand the tax advantages. Contributions to a Roth IRA are made with after-tax dollars, so there's no immediate tax deduction. However, all growth and withdrawals in retirement are completely tax-free. Since teenagers are typically in low tax brackets, paying taxes now rather than later usually makes financial sense.
  6. Keep contributing consistently. Even small, regular contributions create enormous wealth over time thanks to compound growth. A teenager who contributes $2,000 annually from age 16 to 26 (just 10 years) will likely have more retirement wealth than someone who contributes $2,000 annually from age 26 to 65 (40 years), assuming typical market returns.