To be successful, it’s important to develop good habits. That’s certainly the case for investors. The earlier you develop these habits, the better. If you have teenagers with jobs, introduce them to investing. One place to begin might be a Roth individual retirement account (IRA).
In 2023, up to $6,500 per year can go into your teenager’s Roth IRAs, as long as the amount contributed doesn’t exceed the amount of their taxable compensation for the year. Bonus: They don’t have to put in all the money. Parents and grandparents can contribute. You might want to match their contributions up to the limit to provide an incentive for them to continue investing. Not only will your matching contribution help build their assets, but it also can teach them the benefits of earning a match. That can prove valuable later, when they’re in the workforce and have a chance to receive an employer’s matching contributions.
Your teens might find a job at a restaurant or a shop, or, if you have a family business, you can employ them to provide income that can go into a Roth IRA. Furthermore, if the business is one parent’s sole proprietorship or a partnership between both parents, the payments for a child younger than 18 are not subject to Social Security or Medicare taxes. As an employee, your teenager must perform reasonable tasks necessary for the business and be paid wages that are comparable to what you’d pay a regular employee for the same work.
Regardless of how teens earn their wages, using some of their income to help fund a Roth IRA can be a good move. For one thing, it gives you a chance to explain the value of having time on their side when they invest. Simply put, the more years they invest, the greater their chances of accumulating the resources they need to meet their goals. By helping them open a Roth IRA, which holds stocks, mutual funds or virtually any other type of security, you can discuss the different risk/reward characteristics of various types of investments.
Once your teenager’s paychecks start coming in, consider bringing up the idea of opening a Roth IRA. You might be opening the door to a lifetime of consistent and informed investing.
This article was written by Edward Jones for use by your local Edward Jones financial advisor. Edward Jones, member SIPC
– Roberto De Jesus is a financial advisor for the Edward Jones branch on Cedarcrest Road in Acworth.