Kick-start Your Child’s Financial Journey

Having a summer job and a paycheck is exciting

Summer break is here and many young people will be working at summer jobs – for some teens it will be their first experience with managing money.

While earning a paycheck is exciting, it can also be an excellent time to consider opening a Roth IRA and contributing a portion of their summer earnings. Not only does this jump-start retirement savings from an early age, but it can also serve as a positive learning experience about the principles of saving, investing, and cultivating long-term wealth. The Roth IRA offers a unique combination of tax advantages and flexibility, making it an excellent choice for young savers.

Here are a few key benefits:

  • Tax-free growth: Roth IRA contributions are made with after-tax dollars, so your child won’t pay taxes (and perhaps penalties) until they make withdrawals.
  • Penalty-free withdrawals of contributions at any time: Your child can withdraw up to the amount of their total contributions at any time, for any reason, without paying taxes or penalties.
  • Early withdrawals of earnings: If your child withdraws amounts that exceed their contributions before age 59½ or before the account has been open for five years, they may face taxes and a 10% early withdrawal penalty on the earnings portion of the withdrawal.
  • Exceptions to early withdrawal penalties: Your child can withdraw funds before age 59½ or before the account has been open for five years for several reasons (keep in mind that you may be able to avoid penalties but not taxes on any earnings), including:
  • Funds can be used for qualified higher education expenses. 🎓
  • First-time home purchase (up to a $ 10,000 lifetime limit.)
  • If your child becomes disabled. ♿
  • For certain emergency expenses. 🏥
  • If your child is unemployed, they can use a withdrawal to help pay for health insurance premiums. 🩺


The flexibility and withdrawal choices for a Roth IRA can make it an attractive choice for young savers who may need access to their money in the future while still providing a powerful tool for long-term wealth building.

Keep in mind that with a Roth IRA, to qualify for the tax and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be made under certain other circumstances, such as in the examples we listed above. The original Roth IRA owner is not required to take minimum annual withdrawals.

Eligibility requirements

To contribute to a Roth IRA, your child must have earned income from a job, and the maximum contribution for 2024 is $7,000 or the total of their earned income, whichever is less. You can open and manage the account until they reach the age of majority in your state.

One more thing: They may need help filling out their Form W-4

If your child makes less than $14,600 in 2024, they may want to claim an exemption from withholding on their W-4 form by writing “Exempt” on line 4(c) of the form.

Here’s why:

  • Standard deduction: For the 2024 tax year, the standard deduction for a single filer is $14,600. If your child’s total income for the year is less than this amount, they won’t owe any federal income tax.
  • Claiming exemption: If your child expects to owe no federal income tax for the year and wants to have no tax withheld from their paycheck, they can write “Exempt” on line 4(c) of Form W-4. This means their employer won’t withhold any federal income tax from their paychecks.
  • Remember that if your child claims exemption, Social Security and Medicare taxes may still be withheld from their paychecks. Also, if their situation changes and they owe federal income tax for the year, they may face underpayment penalties.
  • Our ideas in this letter are for informational purposes only and are not a replacement for real-life advice. Consider consulting your tax, legal, and accounting professionals if you have questions about completing Form W-4.

If you’d like to discuss opening a Roth IRA for your child or grandchild, feel free to contact our office.

The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. 

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.