The Lawn Mowing Millionaire

If your child plans to work a summer job, encourage him or her to open a Roth IRA.  According to a article, money you pay your child for chores won’t qualify, but money the child earns mowing other people’s lawns, babysitting, working a paper route, and many other jobs probably will.

A Roth IRA offers numerous opportunities to teach your kids about investing as they track the performance of their investments and get hands-on lessons about compound interest.  Plus, money in a Roth IRA may be used to help pay for college, a down payment on a home, and of course, their retirement, although that’s probably a vague concept at this stage of life.

I realize your kids may not jump for joy at the suggestion of investing some of their summer earnings, so consider rewarding their efforts.  Just as many employers match a portion of employee contributions to a 401(k) plan, you could offer some sort of match as well.  Just keep in mind that the total amount contributed cannot exceed the total the child earned in a year up to $5,000.

Your child can open a Roth IRA with $1,000 at Vanguard.  At Fidelity, he or she can open an IRA with just $200, but they’ll have to continue contributing $200 every month.  At Charles Schwab, they can open an account with no initial deposit as long as they automatically deposit $100 per month.

Are there any companies you know of where you can open a Roth IRA for a one-time deposit of less than $1,000?

10 Responses to The Lawn Mowing Millionaire

  1. Mike October 28, 2011 at 9:30 AM #

    Scottrade has a 500 minimum and tradeking has no account minimum.

  2. Amy W November 13, 2010 at 9:19 PM #

    I’m 36 and have been working since I was 14. I wish my parents would have suggested that invest some of the money I earned during high school and college – I believe I ended up spending all of it on clothing, food and incidentals.

  3. Matt Bell May 26, 2010 at 7:42 PM #

    Great question, Dave. My understanding is that IRA money, whether owned by the parent or child, does not count against the child when factoring how much aid he or she qualifies for.

  4. Dave Briggs May 26, 2010 at 6:48 PM #

    Matt … How does building up a child’s Roth IRA impact the amount of student aid he might qualify for versus not having money saved in the child’s name when entering college?

  5. Nicole May 13, 2010 at 3:04 PM #

    One word of caution: don’t invest it and forget it! My husband was advised to open an IRA in high school, but wasn’t advised to watch the investment afterward! He ended up losing money over ten years, and getting a very sour taste for market based investing!

  6. Brad Jack May 11, 2010 at 10:26 PM #

    For the past 3 years, one of my children has worked babysitting jobs. After completing tax returns, we make a Roth IRA contribution for the amount of the child’s income (under $1,000). This allows the teenager to give, save and spend without taking a hit for retirement savings. As parents, we feel we’re loving them with a modest head start.

  7. Matt Bell May 11, 2010 at 9:20 PM #

    Roy, Morningstar has a great tool that can help you determine whether a Roth IRA is right for you. You’ll find it here:

  8. Roy May 11, 2010 at 8:37 PM #

    Will the ROTH IRA work for a retired person?

  9. Matt Bell May 11, 2010 at 4:43 PM #

    Tom – Sorry to be so U.S.-Centric (I see that you’re from New Zealand). It’s a tax-advantaged way to invest.

  10. Tom May 11, 2010 at 4:16 PM #

    What is a Roth IRA?

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