My teenager got a summer job.
The instinct is to let them keep what they earned, and that instinct is right — they did the work. There’s a quieter move that doesn’t take a dollar of their paycheck away, costs you very little, and hands them the single biggest head start the math allows. It’s open for exactly as long as this year’s job is on the books.
The money isn’t the gift — the account is.
Spend a second untangling two things that feel like one. The $1,200 is theirs, and most of it being gone is not a problem to fix — that’s a teenager spending their own money, exactly as they should. What you’re after isn’t the cash. It’s the door the cash quietly opened: a paycheck is the one thing the IRS requires before a teen can own a retirement account, and your teen just earned one.
A teenager’s real advantage isn’t money — it’s time, and time is the one input you can’t buy back later.
A sixteen-year-old has something no fifty-year-old can purchase at any price: roughly half a century before they’ll touch the money. Inside a Roth IRA, every dollar that runway earns grows tax-free — the account never owes income tax on the gain. The next panel shows what that runway is actually worth, and it’s larger than almost anyone guesses.
Four summers, then left alone.
Picture a single account funded across the four summers of high school, each year at a realistic upper end of summer-job money, then never touched again. No further contributions, no withdrawals — just left to compound at a steady 7% after-inflation rate until retirement.
Four summers of work become $124K by 65.
A single Roth IRA, funded across the four summers of high school, then left alone. The four small contributions barely show on the chart; the curve does the work.
Four contributions. Total in: $4,800. Balance at 65: $124K. The other ~119K is what the time did.
The four contributions barely register on the curve. That’s the whole point: the balance at the end isn’t built from how much went in, it’s built from how early it went in. And because the projection grows after inflation, that ending balance is already in today’s dollars — what that money would buy at 65. A saver who starts contributing the same amount in their thirties, after a decade of false starts, never catches this line, not because they saved less, but because they started later.
The rule that makes or breaks it: earned income.
A Roth IRA needs earned income: pay for actual work. A W-2 job at the grocery store or the pool company counts. So does self-employment pay from babysitting, lawn care, or tutoring — money reported on a 1099, or just logged if a customer paid cash. Allowance, birthday cash, and gift money from grandparents do not. This is the one rule that trips parents up, and getting it wrong means unwinding the contribution later.
The legal ceiling — rarely the cap that binds
That ceiling almost never matters for a teen. The real cap is whatever they earned: a teen who made $1,200 can put in at most $1,200, not the full IRS number. Earned income is both the key that unlocks the account and the limit on how much fits inside it this year.
You can fund it for them.
Here’s the part that stops most parents before they start: they assume the contribution has to come out of the teen’s own bank account, so a kid who already spent their summer money is out of luck. Not so. The IRS asks only that the account owner have earned income — it doesn’t care whose dollars make the deposit.
You’re not gifting them retirement money. You’re matching their work, the way an employer match would — their paycheck unlocks the contribution, and you supply the cash, up to whatever they earned. They keep their summer; the account gets the long horizon. No rule bent, everyone ahead.
So the common setup is the simple one: the teen earns and spends like a teen, and you move an equivalent amount, capped at their earnings, into a Roth in their name. The contribution counts as a gift to your teen, but it sits so far under the annual gift-tax exclusion that there’s nothing to report.
One move, this year.
This is the rare window that genuinely expires. A contribution is tied to a specific year’s earned income, and you have until that year’s tax-filing deadline to make it — typically April 15 of the next year. Miss it, and a summer of work you didn’t fund can’t be added back. So the move is small and it has a deadline.
Open a custodial Roth IRA in your teen’s name at a no-fee brokerage, fund it up to what they earned, and place one buy order into a broad index fund. A no-fee brokerage is just the investment platform where such an account lives; Fidelity, Schwab, and Vanguard are the standard choices. Depositing and investing are two separate steps — until you place that buy order, the cash sits in the account earning nothing. The teen Roth IRA guide walks it end to end, including what to gather first: the teen’s Social Security number, an ID, a linked bank account, and a simple record of what they earned.
Until your teen reaches the age of majority in your state, you manage the account as custodian; then it becomes a regular Roth that’s fully theirs. So tell them what you did, and why. The balance is a fraction of the gift; a sixteen-year-old who watches four summers compound becomes a twenty-five-year-old who funds their own account without being asked. That habit is what actually compounds across a family.
The window is the job, not the money.
Your teen’s spent paycheck isn’t the missed opportunity — the unopened account would be. A paying job is the one prerequisite the IRS sets, and your teen just cleared it. Match their earnings into a Roth, point it at a broad index fund, and the half-century of runway in front of them does the rest.
- The gift isn’t the $1,200 — it’s the account a paycheck unlocks and the fifty years of compounding in front of it.
- Four summers funded and left alone grow to roughly $124,000 in today’s dollars by 65, almost all of it from time rather than from the amount put in.
- Only earned income qualifies — W-2 or 1099 pay, never allowance or gift money; it also caps the year’s contribution.
- You can supply the cash yourself; the IRS only requires the teen to have earned income, not to have written the check.
- The one move: open a custodial Roth this year, fund it to their earnings, and place the buy order — the contribution can’t be backfilled once the year closes.