Don’t you wish you started saving for retirement when you were 12? While retirement probably wasn’t something we were thinking about back then (I was probably still thinking about this), it sure could have made a huge difference in our savings journey. You may think it’s crazy for a kid to open a Roth IRA, but here are some reasons why it’s a great idea…
Age doesn’t matter: There are no age rules when it comes to Roth IRAs. The only stipulation is that you have to have earned income. I’m not sure what age you started saving for retirement, but you probably wish you’d have started a little sooner. So why not help your kids start early?
You can be self-employed: You don’t have to work at an ice cream shop in order to qualify. If your 12-year-old wants to babysit or mow lawns all summer, they can put those earning into their Roth IRA and let the compounding interest start doing its thing.
The early bird gets the worm: In this case, “the worm” is a load of cash. So, here’s some cool math. Using Bankrate’s Roth IRA Calculator, let’s look at some results when you start saving at age 12. If you cut your neighbors’ lawns all summer, it’s not out of the realm of possibility to say that you could save $1500. If you put that money in your Roth IRA every summer through college, you could then put even more in once you’ve joined the real world and gotten a real job. But let’s say you still only put in $1500 a year until you retire at age 65. When you retire, you’ll have contributed $79,500 to your IRA which you will have turned into $554,876 (with an expected rate of return of 6%). I don’t know about you, but I wish I had a time machine.
Let me know your thoughts, but a Roth IRA sure seems like a great investment in your child’s future.