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Summertime is often when teens land their first meaningful jobs, and recent college grads head into the permanent workforce. That means they become eligible to save for retirement in a Roth IRA.

Now you and I both know that retirement savings may not be at the top of their to-do list. Can’t really blame them, right? But at the same time, saving when they are young is the absolutely perfect time! The younger they are, the more years they will have for their money to compound.

A $3,000 contribution to a Roth IRA this year that grows at an annualized 7% will be worth nearly $90,000 in 50 years. If they contribute $5,000, it will grow to nearly $150,000.  But if they wait 10 years to start and only have 40 years of compounding, a $5,000 investment will be worth just $75,000. Losing 10 years of compounding cuts their gain in half!

But we’ve still got the problem of them not feeling exactly motivated to save for retirement. This is where you can make a huge difference in their financial future. If your finances are in great shape, and you can afford to help them get rolling with a Roth IRA, I think that’s a great gift that will be a wonderful part of your legacy.

Here are the rules:

  • To contribute to a Roth IRA, a person must have earned income that is at least equal to the contribution.
  • The person with the earned income who opens the Roth IRA account does not need to use their money to fund the Roth IRA.
  • The money for an IRA can be gifted by anyone. That can be a parent, a grandparent, an aunt, an uncle, or a really generous friend.

Let’s say you know an 18-year-old who has a summer job, and they will earn $3,000. That means they are eligible to contribute $3,000 to a Roth IRA. Or a new college grad making $65,000 would be eligible for the 2026 maximum contribution (for someone under age 50) of $7,500.

Now if you have the financial capability to gift them the entire amount, that’s up to you. That might be the most practical for a teen who is rightfully not fully focused on retirement planning just yet. But for a young adult out in the workforce, I would encourage you to consider offering them a deal of sorts to help them get in the habit of saving. Maybe you offer to contribute $4 for every $1 they contribute to the Roth IRA.

Explain how compound growth is the great gift only the young can enjoy, but they have to jump in now, not 10, 15, 20 years from now, to take the fullest advantage of compound growth. They can play around with this free online calculator to see how getting an early start makes a huge difference.

I also hope that if you have a young adult in your life who has landed a full-time job that offers a workplace retirement plan that they make sure they take full advantage of it. They will probably be automatically enrolled in the plan. But that doesn’t mean they are set up for success. Many plans now offer Roth 401(k) options. That’s fantastic. But many plans default (start) new employees in the Traditional 401(k). It’s free and easy to switch to the Roth, which I think is a better option.

I also want you to help them make sure they are getting the most from a company matching contribution. Sometimes employers just start employees at a low “default” contribution rate that is lower than what is needed to earn the maximum employer contribution. That match is free money, but you have to make sure you are contributing enough to get the maximum amount. Your young adult likely doesn’t know that. You do. Help them grab the biggest match; all it typically takes is a quick check-in with HR to request a higher contribution rate.

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    Categories: Retirement, Roth Accounts, Saving