The Roth IRA has one rule that quietly makes it distinctive for a teenager: contributions are limited to earned income. As soon as your child has a real job — babysitting, lawn care, a summer position with W-2 wages — they're eligible to contribute up to the amount they earned, capped each year by the IRS limit.
The money does not have to come from the teenager's own paycheck. Many families let the child keep their earnings for visible spending and gift the matching contribution to the Roth so that the long-term account still gets funded. The IRS does not care where the dollars came from, only that the child has earned income to support the contribution.
Here is how the tax treatment actually works, because "tax-free" is shorthand for a set of conditions. Contributions — the dollars actually put in — can be withdrawn at any time, at any age, without tax or penalty. Earnings are different. A withdrawal of earnings is tax-free only if the distribution is qualified: the Roth must have been open at least five years, and the owner must be 59½ or meet a specific IRS exception (such as disability, death, or a first-time home purchase up to the statutory limit). Earnings withdrawn outside those conditions are taxed as ordinary income and generally carry a 10% federal penalty.
Run the compounding math once with your child sitting next to you. A few thousand dollars contributed at age sixteen, left untouched, can grow into a meaningful account by retirement age. The point isn't the eventual dollar figure. The point is that they will remember the conversation, and they will know, at sixteen, that they already own something.
Educational content only. Nothing in this lesson constitutes legal, tax, or investment advice. Insurance products are governed by the policy contract issued by the carrier.