Custodial Roth IRAs: Kickstarting Wealth for Teens and Kids

The Power of a 50-Year Compounding Horizon

If an 18-year-old invests $7,500 once and lets it compound at 8% until age 68, that single year’s contribution grows into over $340,000 tax-free without adding another dime.

Key Rules for Minor Roth IRAs

1. Earned Income Required: The minor must have legitimate earned income (W-2 from a restaurant, lifeguard job, or documented self-employment such as tutoring or yard care).
2. Contribution Ceiling: The contribution cannot exceed the child’s actual earnings for the calendar year or the IRS cap ($7,500), whichever is lower.
3. Parental Gifting: Parents can fund the account on the child’s behalf, provided the child earned equivalent income.