Roth IRA for Working Teens
There is a steady stream of young people coming into our Extension office to pick up their checks from the sale of their 4-H Livestock projects. We overheard one giving a “woo hoo” as the door was closing. If they fill out the cash flow sheets for their projects they’ll learn about profit or loss. It would be a good time to think about “saving” as well.
A young person who earns income, including proceeds from a 4-H project, can open a Roth IRA. The maximum amount that can be added to a Roth in 2013 is $5,500 or your earned income. If you only earn $400 during the year, that is your maximum contribution. Families are allowed to help out. Let’s say there is only $100 after paying expenses, because you earned $400 and are eligible to make that contribution, a family member, or “fair godmother”, could provide a match of $300. The match is legal as long as the contribution doesn’t exceed your total earned income.
The easiest way to open a Roth is with a financial institution, a bank or credit union. There are a variety of investment choices to consider, some conservative and others with higher risk. Unlike a savings account there won’t be a guaranteed return or interest paid annually. Working with a small sum will require you to find a financial institution that has options for periodic or small contributions. The Roth would also have rules for withdrawals that would make it less liquid than a passbook account. Here is an article that provides more information: http://www.mydollarplan.com/roth-ira-for-teens/ Joyce