ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel
  • »
  • Personal Finance»
  • Family Budget

Roth IRAs Ror Teens and Minors

Updated on December 30, 2012
If you start your kid saving money at a young age, time is in their favor, thanks to the power of compounding investing.
If you start your kid saving money at a young age, time is in their favor, thanks to the power of compounding investing. | Source

Can You Create a Roth IRA for Teens?

Roth Individual Retirement Accounts (IRAs) are great investment tools. They allow you to save up to $5,0500 per year (2013 contribution limit, the 2013 contribution limit is $5,000) while your earnings grow tax-free. Yes, you read that right - tax free. The advantages are so great that many folks are interested in setting up IRAs for their children. The great news - anyone receiving taxable compensation, provided they are under the age of 70 1/2, can contribute to a Roth IRA. That includes your teen.

A piggybank to help you save

What Is Compensation?

So, what income qualifies as compensation for purposes of contributing to a Roth IRA? Generally, compensation is what you earn from working.

  • Wages, salaries, bonuses, etc.
  • Commissions
  • Self-employment income

So, assuming your child qualifies for a Roth IRA, how exactly do you go about setting one up?

  • The 2013 IRA contribution limit is $5,500

Financial Literacy Games

How to Set up a Roth IRA for Minors

Your minor child can open a Roth IRA in the same way that you would, including major brokerage firms, such as Charles Schwab and Scottrade.

Charles Schwab:

  • Minimum opening deposit: $100
  • Monthly service charge: $0
  • Trade commissions: $8.95 per online trade; $0 per Schwab ETF online trade in your Schwab account
  • Minimum contribution requirements: $0
  • You can set up an account online or at a branch office
  • Help from new account specialists


  • Minimum opening deposit: $500 (for all accounts at Scottrade)
  • You can complete it in a local branch, or email, mail or fax the documents to your local branch but not online.
  • Set up fees: $0
  • Annual maintenance fees: $0
  • Scottrade will refund up to $100 in transfer fees* when you rollover an existing account.
  • Minimum contribution requirements: $0
  • Help from new account specialists


  • Minimum opening deposit: $3,000
  • Monthly fees: a $20 fee applies to each fund in an account with a balance of less than $10,000 if you sign up to receive statements and other important documents electronically or if you’re a Voyager, Voyager Select, or Flagship client.
  • Help from new account specialists
  • You can set up an account online
  • No commissions

How You Can Help Your Teen Save Money

With 2013 IRA contribution limits of $5,500, maximizing contributions for a teenager can seem like a crap shoot. But, with encouragement and education, minors can grasp the value of contributing. And the great news is that they have time on their side. I started my first IRA when I was 16. Sure, I wasn't putting much in it, just $33 at a time. But, it started the savings habit. Now, as I have grown, I still contribute to my Roth IRA and I am thankful that I got such an early start. I only wish I had been able to contribute more and that I had taken more time to learn how to invest when I was young.

Tips For Parents

If you are a parent reading this, please encourage your teen on their savings journey. Perhaps you can match their IRA contributions as an allowance, giving them the opportunity to contribute more. For example, if they are earning $500 a month and can only save 10%, that's a contribution of $50 per month, or $600 a year. This is a great start. But, let's assume that you gave them an allowance equal to their $50 contribution. They can now contribute $100 a month while still keeping $450 in their pocket. As long as they are earning the full amount of their contributions in compensation, they are still eligible to contribute. Read about ways to help your teen save money.

Tips for Teenagers

If you are a teenager reading this - CONGRATULATIONS. Thank you for taking the time to learn about financial literacy at a young age. You are already ahead of your peers and on a path to success. While the steps you are taking may seem small today, you are setting yourself up for a lifetime of success. The healthy spending and savings habits you are starting now will serve you well in the future. Keep up the good work.


    0 of 8192 characters used
    Post Comment

    • Rosie writes profile image

      Rosie writes 5 years ago from Virginia

      Great informatation and list of resources. What are the rules for withdrawing the savings and what kinds of penalties are there? Voted up and useful.

    • Written Up profile image

      Written Up 5 years ago from Oklahoma City, OK

      Thanks tipstoretireearly. I hope it helps some young kids get started on retirement savings.

    • tipstoretireearly profile image

      tipstoretireearly 5 years ago from New York

      This is a wonderful opportunity for a young person to amass a lifetime of investment earnings which will NEVER be taxed. Great idea!