Beyond the Savings Account: Why a Roth IRA is the Ultimate Gift for Kids

If you’re looking for a meaningful way to set your kids or grandkids up for success, few gifts can match the impact of helping them open and fund a Roth IRA. A Roth IRA is the most valuable account (tax-free growth), and the hardest to fund with income limitations and low annual funding limits. Starting early is powerful.

Let’s say your 16-year-old contributes $3,000 a year to a Roth IRA for six years (ages 16–21), then stops contributing altogether. That’s just $18,000 invested.

If it earns an average of 8% per year:

• At age 40, it could grow to $84,000
• At age 60, about $392,000
• And by age 65, nearly $577,000 — all tax-free.

Qualifying to fund a Rota IRA

The IRS rule is simple: kids (or adults) must have earned income to make Roth contributions. For 2025, they can contribute up to $7,000 or 100% of their earned income — whichever is less.

Here are a few ways to qualify:

• Part-time jobs like babysitting, lifeguarding, or working retail.
• Freelance work, such as mowing lawns, tutoring, or dog walking.
• Helping in a family business, if the work is legitimate and the pay is reasonable (for example, social media help, filing, or cleaning equipment).

IMPORTANT - If your child earns money but spends it, that’s fine — you can gift them the equivalent amount to fund the Roth IRA. The key is that earned income must exist to justify the contribution.