This is the closest thing to a money cheat code you'll ever get. A Roth IRA lets the money you invest as a teen grow for decades, and you never pay a cent of tax on the growth. Start now and time does the heavy lifting. Move the sliders to see it.
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"IRA" stands for Individual Retirement Account. But don't let the word "retirement" scare you off. It's just a special investing account with one incredible rule: because you put in money you've already paid tax on, everything it earns after that grows completely tax-free. When you take it out later, you owe nothing. Not on the growth. Not ever.
Inside the account you don't just let cash sit there. You invest it, usually in a simple index fund that owns a slice of hundreds of companies. Over decades, that's where the magic of compound interest takes over.
There's really just one catch for teens, and it's an easy one.
To put money in a Roth IRA, you have to have earned it from work that year: a summer job, babysitting, mowing lawns, a real paycheck, or your own teen business. If you earned it, you qualify.
Allowance, birthday money, and gifts don't count as earned income. And you can only contribute up to how much you actually earned that year (or the annual limit, whichever is lower). Earn $2,000, and $2,000 is your max.
The yearly contribution limit is around $7,000, but the IRS adjusts it over time, so check the current year's number before you max out. Most teens are limited by their earnings long before they hit that cap.
Here's the part that sounds fake but isn't. Say you invest just $2,000 a year for the 4 years you're 15 to 18 ($8,000 total) and then you never add another dollar. Left alone in an index fund earning around 7% a year, that $8,000 could grow to well over $150,000 by the time you're 65. You contributed eight grand. Time and compounding did the rest.
Now flip it: someone who waits until 30 to start has to invest far more money to end up with the same amount, because they gave away their most valuable ingredient, which is years. You can't buy those back later. That's why "just start early" is the single best money advice there is, and you're in the rare position to actually do it.
Since you're under 18, a parent opens it with you. It's called a custodial Roth IRA.
Any job counts: a paycheck, babysitting, lawn care, or your own hustle. Keep a simple record of what you earned, since that's the most you're allowed to contribute for the year.
Because you're a minor, a parent or guardian opens the account and manages it for you until you're an adult. Then it becomes fully yours. Many big brokerages offer these for free with no minimum.
Contribute up to what you earned this year (or the annual limit). It doesn't have to be your exact paycheck. A parent can even gift you money to contribute, as long as you earned at least that much.
This trips people up: money sitting in the account isn't invested yet. Put it into a broad, low-cost index fund so it can grow. Un-invested cash just sits there doing nothing.
Contribute what you can whenever you earn, then let compounding work. The hardest skill is doing nothing. Don't panic-sell when the market dips. Time in the market beats timing it.
The details worth knowing before you start.
There's no age requirement. A 13-year-old with a babysitting income can have one. The only rule is earned income.
You can withdraw the money you put in anytime without penalty. The growth is what you leave to compound.
Because you funded it with after-tax money, every dollar it earns comes out tax-free in retirement.
You can contribute up to what you earned, capped at the yearly limit (about $7,000, adjusted over time).
Under 18 you use a custodial Roth IRA; control passes fully to you when you become an adult.
The account is just the container. A simple index fund inside it is what actually grows your money.
Yes. There's no minimum age. The only requirement is that you have earned income from work during the year. Because you're under 18, a parent or guardian opens a custodial Roth IRA and manages it with you until you're legally an adult, at which point it becomes entirely yours. A part-time job, babysitting, lawn care, or your own small business all qualify you.
You can contribute up to the amount you earned that year, capped at the annual IRS limit (around $7,000, though it's adjusted over time). So if you earned $1,800 babysitting, your max contribution is $1,800. Most teens are limited by their earnings, not the cap. You don't have to hit the max. Even $20 a month is a real start.
Opening the account is only step one. The money sitting in it isn't invested until you choose something. Most people (of any age) do great with a single broad, low-cost index fund that spreads your money across hundreds of companies. It's simple, cheap, and doesn't require you to pick winning stocks. Read our investing for teens guide for the basics.
A nice safety feature of a Roth IRA: you can withdraw the contributions (the money you personally put in) at any time, for any reason, with no tax or penalty. The earnings are what you generally want to leave alone until retirement so they keep growing tax-free. That said, the whole point is to let it compound, so only tap it if you truly must.
For long-term money, yes, by a lot. A savings account is perfect for your emergency fund and short-term goals, but it barely grows. A Roth IRA is invested, so over decades it can grow many times over, tax-free. The smart move is both: keep an emergency fund in savings, then invest longer-term money in a Roth IRA.