Did Your Kid Earn a Paycheck This Year? This Could Be the Most Valuable Holiday Gift You Give

Core Insights - A child's first paycheck provides a unique opportunity to contribute to a Roth IRA, allowing for tax-free growth that many adults cannot access [2][4] - Teens often have a federal tax rate of 0%, enabling them to contribute to a Roth IRA without incurring taxes, which is a significant advantage [3][11] - Parents can contribute to their child's Roth IRA, enhancing the potential for long-term wealth accumulation [5][9] Contribution Mechanics - For 2025, the IRS contribution limit for a Roth IRA is $7,000 or the child's total earned income, whichever is less [7] - A Minor Roth IRA must be established for children under 18, with an adult custodian, transitioning to a standard Roth IRA upon reaching adulthood [8] - Contributions can be made by anyone, including family members, up to the child's earned income or the annual limit [12] Timing and Strategy - Contributions for 2025 can be made until April 15, 2026, but many families prefer to contribute at year-end [13] - Establishing a contribution match can help instill saving habits in teens, with various matching strategies available [14][15] - Consistent contributions, even small ones, can lead to significant long-term growth due to the tax-free nature of Roth IRAs [17][18] Flexibility and Access - Contributions to a Roth IRA can be withdrawn anytime without taxes or penalties, providing some liquidity [19] - The true value of a Roth IRA is realized when funds are allowed to grow untouched for an extended period [19]