Now that Roth IRA conversions are available to people who previously hadn’t been eligible, there’s been quite a spike in coverage. However, the spotlight should probably be focused more on those who can have a Roth, but as yet do not.
As many have pointed out, one of those groups is minor children, assuming they have earned income.
It’s an understatement to say the economy has been unkind to teenagers searching for employment. The most recent release from the Bureau of Labor Statistics cites a January 2010 unemployment rate of 26.4% for those ages 16–19. In some states, the rate is much higher.
For those teens lucky enough to secure a paying job, there’s usually a long list of things to spend money on—from immediate needs like clothing and entertainment to farther-off goals such as college tuition. (For my own children, a shared car consumed most of their resources.)
Predictably, what doesn’t make most teenagers’ lists is retirement savings. It’s a question of scarce resources and opportunity—not to mention limited interest. And as an adult, you’re probably balancing your own retirement savings with saving for your kids’ college costs.
But if you do have the means—or, better yet, if your teen is willing to part with some of his or her own money—you might consider helping him or her begin that long journey to retirement. Years from now, funding a Roth IRA with (or for) a qualifying minor is something you’ll probably be very glad you did. Giving your child a 10- or 20-year head start on investing for retirement could yield very valuable results in the end, even if tax rules change along the way.
Ranking your financial priorities isn’t hard. Your retirement savings come first, college second, and then a Roth IRA for your child, along with other competing needs, third. But it’s well worth considering.
Note: The link to BLS.gov will open a new browser window. Vanguard accepts no responsibility for content on third-party websites.