Underage Kids CAN Get Rich

Many people forget that kids CAN work for a company — while also sometimes obtaining a pretty good amount of money!

The notion of kids contributing to their own IRA, especially a Roth IRA, surprises lots of people and is not normally seen as a worthwhile tradition.

But it should be a tradition, because it’s a really good idea.

Here’s what you need to know about IRAs for kids. Let’s start with the Roth IRA option.

Roth IRA Contribution Basics

The only federal-income-tax-law requirement for a child to make an annual Roth IRA contribution is to have enough earned income during the year to cover the contribution. Age is completely irrelevant.

So if a child earns some cash from a summer job or part-time work after school, he or she is entitled to make a Roth contribution for that year.

For both the 2021 and 2022 tax years, your working child can contribute the lesser of

·his or her earned income for the year, or

·$6,000.

While the same $6,000 contribution limit applies equally to Roth IRAs and traditional IRAs, the Roth option is usually better for kids for the reasons explained later in this article.

Key point. A contribution for your child’s 2021 tax year can be made as late as April 15, 2022. So, there’s still time for that.

Income Restriction