Early Life Investments
A Family Financial Head Start
“The best time to build lifelong money habits is when you are young. The second-best time is today.”
“The best time to build lifelong money habits is when you are young. The second-best time is today.”
From the Blog — June 20, 2026 · 6 min read
The average teen summer job pays $17 an hour in 2026. The wage is temporary. The Roth IRA space it unlocks is permanent — and most families let it expire unused.
School is out, and across the country teenagers are starting summer jobs — though this summer’s teen job market is the weakest since 1948, which makes every paycheck that does land count for more. NPR reported this month that even in a tighter market, the benefits of a first job go well beyond the paycheck. I agree — but I want to talk about the part of the paycheck almost everyone ignores. Every dollar of earned income your teen brings home this summer unlocks something that expires at year-end if unused: contribution space in a custodial Roth IRA.
Suze Orman made this case in early June, and her example is worth repeating: $5,000 invested in a Roth IRA during a teen’s first summer job can grow to roughly $150,000 over 50 years. Wait ten years to start, and the same $5,000 grows to only about half that amount.
There is no minimum age for a Roth IRA. The only requirement is earned income — W-2 wages, or legitimate self-employment income like mowing lawns or babysitting. If the child is under 18 years old the parent opens a custodial Roth IRA, the teen is the owner, and the parent manages it until the age of majority. Both Fidelity and Schwab offer them with no fees and no minimums.
The contribution limit for 2026 is $7,500 or the teen’s total earned income, whichever is smaller. Run the math on the average summer: $17.00 an hour at 320 full-time summer hours is about $5,440 — nearly the entire annual limit unlocked in ten weeks.
In our house we run a match. When my oldest started his first real job at the mall, we agreed that for every dollar he contributed to his Roth IRA, I would match it. It is a 100% guaranteed return — better than any employer 401(k) match he will ever see — and it teaches the matching habit a decade before HR explains it to him. He learned what “free money on the table” means by picking it up, not by hearing about it. At the end of the year when he had maintained his contribution I made sure I contributed the maximum he could based on his income.
I started smaller with my youngest. His first Roth contribution was $20 — money he earned watering a neighbor’s plants. The dollar amount was almost comical. The point was not the dollars. The point was that he now owns an account, watches it, and asks questions about it. Experience teaches what instruction cannot. Since we opened his account 4 years ago now, with basic contributions of $800 over that time it has now grown to $1,500 at age 13.
You cannot get the years back. Every dollar your child earns this summer creates room in a Roth IRA, but that room expires when the year ends — unused, it’s gone for good.
A teenager earning a few thousand dollars a year pays effectively zero federal or state income tax. That makes the Roth IRA’s trade — pay tax now, never again — hard to beat for a young investor with decades of tax-free growth ahead. The money grows tax-free for 40 or 50 years, and qualified withdrawals in retirement are tax-free and not subject to required minimum distributions. And if life happens, contributions (not earnings) can be withdrawn at any time without taxes or penalties, which makes the account far less scary as a first commitment than most parents assume.
One practical note for self-employment income: keep simple records. A notebook or spreadsheet listing the date, the work, who paid, and the amount is enough documentation for a kid’s lawn-mowing income. We track my youngest’s jobs in an Excel sheet that shows all his income over the years. I have created a free Paycheck Tracker for children’s self-employment income to help you log your child’s earnings, or an hourly-wage version if they have a job with W-2 income. You can find these and more on the Tools page.
The custodial Roth IRA is the right first move when your teen has earned income. But what about money that does not come from a paycheck — birthday gifts, holiday money, a grandparent’s contribution? That is where a UTMA custodial account (Uniform Transfers to Minors Act) fits into the stack.
A UTMA account is a standard taxable brokerage account held in your child’s name with you as custodian. Unlike the Roth IRA, there is no earned-income requirement — any money from any source can go in — and there is no annual contribution limit. You can open one at Fidelity, Schwab, or Vanguard alongside a custodial Roth IRA, often in the same login.
The trade-off is tax treatment. Gains in a UTMA are taxable each year: the first ~$1,350 of unearned income is tax-free, the next ~$1,350 is taxed at the child’s rate (usually 0%), and anything above that is subject to the “kiddie tax” at the parent’s marginal rate until the child is 19 (or 24 if a full-time student). For most families, the actual tax bill is small or zero until the account grows large — but it is real, unlike the Roth.
There is one other difference worth knowing before you open one: a UTMA gift is irrevocable. Once the money goes in, it legally belongs to your child, and it transfers to them outright at the age of majority (18–21 depending on your state). You cannot take it back if your plans change. That is not a reason to avoid the account — it is a reason to be intentional about what goes in.
Most financial advisors suggest directing 15% of household income toward retirement investing, prioritizing Roth IRAs and good growth stock mutual funds. It is sound advice for adults. What the standard advice skips is that your child can hold a Roth IRA and a UTMA account decades before their first full-time job — with a longer compounding runway than any adult will ever have. The 15% rule starts at 25. The head start starts at the first dollar earned. If you are working on the broader household framework alongside your teen’s accounts, the modified Ramsey baby steps post walks through how we sequence priorities from emergency fund to investing, and Financially Savvy Kids covers the conversation to have with them along the way.
If your teenager is working this summer, open the custodial Roth IRA this month, not in December. Pair it with a UTMA account for any non-paycheck money coming their way. Contribute something — $100 matters, $20 matters — and consider a parent match to make the lesson stick. The wage is temporary. The habit, and the four decades of compounding, are not. If your child is younger and not earning yet, the Trump Account (Section 530A) is the place to start — no earned income required and a $1,000 government seed for qualifying children. If you want help making the case to your teen, the books that have worked in our house are in the book reviews.