If your child plans to work a summer job, encourage him or her to open a Roth IRA. According to a Mainstreet.com 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?