Summer jobs provide unique opportunities for saving

It’s that time of year. Kids will soon be busy at summer jobs doing everything from house painting to computer programming. While there are endless opportunities to spend their hard-earned money—think cell phones, gas, clothing, and social activities—another option to consider is funding a Roth IRA.

It may come as a surprise, but all your child needs to qualify for the tax advantaged savings of a Roth IRA is earned income.

Roth IRAs are an ideal investment vehicle for young workers because the earnings grow income tax free. All those years of compounded tax-free earnings can make a big difference upon retirement. For example, if your child saves $1,500 each year from age 16 to 20 in a Roth IRA, and the account grows at an annual rate of 6 percent, the value at age 65 will be $98,614. That’s without adding another cent from age 21 to 65! While this value won’t be enough for retirement on its own, it’s a strong start and all available income tax-free.

Besides retirement, Roth IRAs can also be used for other savings goals. The principal can be withdrawn at any time without penalty. In addition, your child will also be able to make qualified (penalty-free) withdrawals for:

•  Higher education expenses

•  A first time home purchase

•  Unreimbursed medical expenses

So how do you get your child to sock away their money when there are so many other spending opportunities? A little education is a great place to start. Share your struggles to save enough for retirement. Let them know that according to the Employee Benefit Research Institute’s 2014 Retirement Confidence Survey, only 18 percent of workers are confident they’ll have enough money to retire.  And finally, make sure they understand that they are in the wonderful—but temporary—place of having time on their side. A little money now will go a long way later.

The next step is to formalize their savings. Create a realistic plan. While they could save up to 100 percent of their income, maybe you want them to save 50 percent of what they earn. Or maybe you want to match a percentage of what they earn. You could do a combination of the two. Say they earn $500. You could require that they save $250 and you’ll match it with another $250. That incentivizes saving while leaving them some money for other expenses.

Lastly, a Roth IRA can be opened at any number of financial institutions including most local banks and credit unions, as well as online at websites like No matter where you decide to open the account, it is important to establish an automatic withdrawal from their bank account to their Roth IRA, so the savings is regular and disciplined.

Now, don’t you wish someone had done this for you when you had a summer job? Trust us; your kids will thank you for it. •


Matthew Vandre is a National Financial Educators Council – Certified Financial Education Instructor (  Francis Investment Counsel provides conflict-free investment advisory services to qualified retirement plan sponsors and their employees. They are fiduciaries whose award-winning investment consulting and financial education services help mid-to large-size organizations improve the effectiveness of their 401(k) plans and guide the retirement plan decisions of tens of thousands of plan participants across the country. Visit them at

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