Getting Your Child’s Money to Work for Them: Why a Roth IRA Could Be the Best Gift You Ever Give

By Coleman Harper

07/06/2025

As parents, we do everything we can to prepare our children for a successful future—through education, guidance, and support. But one often-overlooked gift you can give them is a head start on financial freedom.

Helping your child open a Roth IRA early in life—and teaching them to consistently contribute, even in small amounts—can lead to a lifetime of tax-free wealth and smart financial habits. Let's explore how powerful this move can be, using real numbers and simple examples.

What’s a Roth IRA (and Why Should Your Child Start One)?

A Roth IRA is a special retirement account that allows investments to grow tax-free. Contributions are made with after-tax dollars, and as long as certain conditions are met, your child can withdraw every dollar—including all the earnings—without paying taxes in retirement.

To open a Roth IRA for your child:

• They must have earned income (wages from a job, freelance work, babysitting, etc.).

• They can only contribute up to the amount they earned, or the IRS annual limit (currently $7,000 for 2025), whichever is less.

That means if your teen earns $1,200 from a summer job, they’re eligible to contribute up to $1,200 to a Roth IRA that year.

The Power of Compound Interest

Compound interest is the snowball effect where your investments generate earnings—and those earnings generate more earnings.

The earlier you start, the longer that snowball has to roll. Even small amounts invested early can grow into substantial wealth over time.

Real Example: $1,200 Per Year Starting at Age 16

Let’s say your child starts investing $1,200 per year at age 16 and continues for 15 years, stopping at age 30.

• Total invested: $18,000

• Value by age 30 (at 7% average return): ~$32,457

• Value by age 65 (no further contributions): ~$343,000 — completely tax-free

That’s the power of time + compounding.

Robin vs. Chris: Why Starting Early Wins

To really show the difference time makes, let’s compare two hypothetical savers:

+--------+------------------+---------------------------+------------------------+----------------------+---------------------------------------+

| Name | Starts at Age | Annual Contribution | Years Contributing| Total Invested    | Value at Age 65 (7% Return) |

+--------+------------------+---------------------------+------------------------+----------------------+---------------------------------------+

| Robin |         16          |         $1,200              | 15 (stops at 30)   |    $18,000           |           ~$343,000                   |

| Chris  |         30          |         $1,200              | 35 (until 65)         |    $42,000           |           ~$180,000                   |

+--------+-------------------+---------------------------+-----------------------+----------------------+--------------------------------------+

Even though Chris invests more than twice as much, Robin ends up with nearly double the tax-free savings—all because they started earlier.

What If Someone Starts Later with More?

Now let’s look at a third scenario: someone who starts investing later but contributes more.

• Starts at age 25

• Invests $5,000/year

• Contributes for 40 years (until age 65)

• Total invested: $200,000

At a 7% return:

• Account value by age 65: ~$1.06 million

• Tax-free growth: ~$860,000

Even if your child starts later in life, this example shows that consistent investing still builds wealth—it just takes more money to reach the same results as someone who started younger with less.

How Parents Can Help

You don’t have to wait until your child becomes a financial expert. Here’s how you can support them now:

• Open a Custodial Roth IRA – You manage the account until your child turns 18 or 21 (depending on your state).

• Match their contributions – If they earn $1,200, you can gift them $1,200 to invest (as long as it doesn’t exceed their earned income).

• Teach the “why” – Use tools like Investor.gov’s calculator to show how compound interest works.

• Celebrate milestones – Make saving fun. Celebrate growth, even if it’s just their first $100 in interest.

Final Thoughts

Helping your child open a Roth IRA might not seem flashy, but it’s one of the most powerful long-term gifts you can offer. Whether they’re a Robin who starts early, a Chris who gets a later start, or someone contributing more in their 20s, the results speak for themselves:

• Start small.

• Start early.

• Stay consistent.

And let compound interest handle the rest.

References

• IRS Roth IRA Rules: https://www.irs.gov/retirement-plans/roth-iras

• Compound interest calculations using Investor.gov Compound Interest Calculator, based on a 7% average annual return and no withdrawals.