Your Child Earned $6,500. Now Open a Roth IRA Before They Blow It.

Your teenager just earned legitimate income through real development work. The standard deduction means they likely owe zero federal income tax on the first $14,600. But here's the move most parents miss: a custodial Roth IRA.

The Math That Changes Everything

A 14-year-old who contributes $6,500 to a Roth IRA and never adds another dollar will have approximately $340,000 at age 65 (assuming 8% average annual return). That's from a single year of contributions.

Now imagine they contribute $6,500 every year from age 14 to 18 -- five years of earned income from real work. That's $32,500 in contributions that could grow to over $1.5 million by retirement. Tax-free.

The Requirements

To open a Roth IRA for a minor, you need exactly one thing: legitimate earned income.

• Allowance doesn't count
• Gift money doesn't count
• Investment returns don't count
• Wages from a real job or self-employment income: that counts

This is why the documentation from KidsBuild matters so much. You need to prove the income was earned -- time logs, invoices, and W-2s or 1099 forms. Without that paper trail, the IRS can challenge the Roth IRA contribution itself.

How to Open a Custodial Roth IRA

1. Choose a brokerage (Fidelity, Schwab, and Vanguard all offer custodial Roth IRAs)
2. Open the account with your child's SSN and your info as custodian
3. Fund up to the lesser of their earned income or $7,000 (2026 limit)
4. Invest in a low-cost index fund (total market or S&P 500)
5. The account transfers to them at age 18 or 21 depending on your state

The Parent's Secret Move

Here's what smart parents do: pay the child for real work, let the child keep some spending money from their wages, then the parent gifts the Roth IRA contribution amount separately. The contribution limit is based on earned income, but the actual dollars contributed can come from anyone.

So your child earns $6,500, keeps $3,000 for spending/saving, and you gift $6,500 into their Roth. Everyone wins: the child has spending money, the Roth is maxed, and the tax benefits flow through.

What to Invest In

Keep it simple. A total US stock market index fund (like VTSAX or FSKAX) or an S&P 500 index fund (like VOO). At 14, your child has a 50+ year time horizon. That's the longest possible runway for compound growth. Don't overthink it.