Get Richer Early: 5 Ways Your Teen Can Graduate with a Funded Retirement

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How great would it feel to never have to worry about saving for retirement? 

You can help your children achieve that feeling. If you help them set up and max out a Roth IRA, they can graduate college with enough of a nest egg to compound on its own throughout their career. They can become a decamillionaire in their 60s — without ever saving a cent in adulthood. 

As a cherry on top, they won’t even pay taxes on their withdrawals in retirement. Here are a few steps to take to set your kids up for retirement now.

Open a Custodial Roth IRA With Them

The IRS doesn’t set a minimum age for opening a Roth IRA. Even babies can have a Roth IRA. 

Here’s the kicker, though: to contribute, an accountholder must have earned income. So a baby can only contribute if they earn an income, such as starring in diaper commercials. 

The older they grow, the more opportunities they have to earn income. And you can, of course, offer a helping hand here and there — more on that momentarily. 

As their parent or guardian, you’ll need to sign as the adult custodian for the account. Full control passes to your child when they reach adulthood. 

Help Them Max It Out

“Earned income” includes wage income (W2), gig income (1099), and income from an owned business. 

If you own or manage a business, you can hire your child and pay them as an employee. Alternatively, you can help them start their own business or freelance gig. 

You could even partner with your child on a business, which could grow into something you’d both still enjoy doing when they reach adulthood. 

In 2025, the IRS lets workers under 50 contribute up to $7,000 per year (or the total of your earned income). Help ensure your child can show at least $7,000 in earned income so they can max out their Roth IRA. 

If your child complains about having to part with all their income rather than spending it or putting it toward college, remember that you can give them tax-free gifts to sweeten the pot. For example, you could say, “For every dollar you earn and put in your Roth IRA, I’ll put a dollar in your checking account.” The IRS lets you give them up to $19,000 tax-free in 2025. 

Have Them Invest in 100% Equities

With decades to go before retirement, they should invest all of their money in equities (stocks or real estate). 

Imagine you help your child max out their Roth IRA for a decade between ages 12-22. Investing $583.33 per month ($7,000 per year), they’d end that decade with $117,887 if they earned a 10% average return. 

That doesn’t sound impressive — until you give it decades to compound. 

If your child never contributes another cent after age 22, their Roth IRA balance would still compound to astronomical heights by the time they reach their 60s. 

By age 60, they’d have $5,029,140. If they wait until 62 to start taking Social Security, they’d have $6,127,519. By the full retirement age of 67, they’d have over $10,040,653. And at the maximum benefit age of 70, they’d have an impressive $13,503,562. 

Play around with the numbers using a compound interest calculator such as Investor.gov. 

Teach the Fundamentals of Personal Finance

It doesn’t matter how well set your children are if they grow up with bad money habits. They need to understand budgeting, investing, and tax strategies, not just how to go on shopping sprees and order meals at fine restaurants. 

Fortunately, opening a Roth IRA with your kids opens the door for those lessons. 

To make the concept of budgeting more real, consider charging your child nominal amounts for rent, utilities, groceries, and so forth. Again, you can always give them far more in the form of an allowance or gifts, but you want them to grow up managing a budget that mimics real-world conditions. 

Show them how index funds work. Sit down together to pick one to five funds to invest in, through their Roth IRA. 

Explain the difference between Roth and traditional IRAs and how other tax-advantaged accounts work. Point out the different tax rates for income versus capital gains. 

Watch Out for Self-Employment Taxes

If your child earns 1099 income or business income, they’ll owe self-employment taxes. 

Self-employment taxes, also known as FICA taxes, come to 15.3% of self-employment income. Earned income requires a tax return, and even though your child may not earn enough to pay regular income taxes, they may still owe FICA taxes. Read more about FICA taxes on the Social Security website. 

You can set your child up for a wealthy life without spoiling them. Teach them personal finance and investing, and help them max out their Roth IRA. They’ll thank you when they’re a decamillionaire in retirement, even if you aren’t around to hear it. 

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