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Retirement Planning In High School? It’s Never Too Early, Experts Say

TedTed
in Fund Discussions
FYI: It might seem odd to open a retirement account for a high school student.
But teenagers can get a big head start on long-term savings, financial advisers say, by stashing some of their earnings in a Roth individual retirement account.

Now is a good time to talk with teenagers about long-term savings using a Roth I.R.A. because they may have earned money from summer jobs, said Patricia A. Seaman, a spokeswoman for the National Endowment for Financial Education, a nonprofit organization that promotes financial literacy.

Teenagers can benefit from tax-free growth of investments in a Roth account years before they have the opportunity to contribute to a workplace retirement plan, Ms. Seaman said. And five decades of growth allows plenty of time to ride out market swings.

“The earlier you start,” Ms. Seaman said, “the more the time value of money works for you.”

A Roth I.R.A. for someone under 18 must be opened and managed by an adult custodian, like a parent or grandparent. The teenager must have earned income, whether from a formal job or from gigs like babysitting and lawn mowing. Children can contribute their total annual earnings up to $5,500.
Regards,
Ted
https://www.nytimes.com/2018/08/24/your-money/roth-ira-retirement-teenagers.html

Comments

  • Sven
    Assuming these high school kids file for tax return, then they can open an IRA account. Roth IRA is even better.

    The other challenge I see is the lack of an understanding on finance for many kids growing up today. Even though algebra is a required class, how much emphasis they place on the practical aspect of math in relation to finance? The responsibility lie with the school system as well the parents.

  • catch22catch22
    Here is a big chew regarding IRA's for minor's from MFO, 2017 discussion.
    @Sven
    A tax return is not necessarily a requirement; nor is being a "high school" student.
    I surely hope, to the extend allowed annually; that the parent(s) of the child doing modeling or a baby commercial have made the allowable annual Roth contribution. The child does indeed have income, if all things legal are properly set in place.
    Take a look again at the national and local level commercials on TV. Those young ones are indeed earning income, yes?
    ---An add, at least relative to Fidelity; minimums regarding fees and anything related are waived for a minor IRA account as the overall value of the account(s) held by the adult are the baseline for this. Fidelity's recent 10:1 split with some of their managed funds offer an advantage for minor's, too; as if the minor had $250 in their first deposit, they couldn't buy FSPHX at $260/unit. The split now places the price at $26/unit, more or less. Fidelity offers more than enough of their own and I-shares etfs to cover all of the bases for a minor's Roth IRA.
    Regards,
    Catch

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