His grandson is 16. Lifeguards at the community pool.
Makes $4,200 a year.
His grandfather wrote him a check for $4,200 last month.
The kid assumed it was for his car fund. His grandfather told him no. Open a Roth IRA. Put it all in. The check is the contribution, not the spending money.
Roth IRAs require earned income. If a kid has a W-2, anyone in the family can fund the Roth up to what they earned. He earned $4,200. He can shelter $4,200.
If that money compounds at 8% for 50 years, untouched, it becomes about $197,000. Tax free at withdrawal. Forever.
His grandfather plans to do this every year his grandson keeps working.
By 22 he'll have a Roth worth more than most adults his age will see in their first decade of retirement saving.
The greatest gift to give a teenager isn't a car. It's 50 years of tax free compounding.
Disclaimer: A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.