How a Summer Job Can Kickstart Your Retirement Savings

It’s that time of the year when teens and college students are toiling away at their summer jobs while the rest of us hit the beach. Retirement might not have been top of mind when you applied for that summer job, however, this is the perfect time and opportunity for you to start saving for retirement. You can contribute some or all of your summer earnings to a Roth Individual Retirement Account (“Roth IRA”). Your money will grow tax-free while in the Roth IRA and no taxes are due when you withdraw the money in retirement.

To start saving, follow these steps:

  1. Calculate your annual earned income. Earned income can be from any job, i.e., babysitting, dog walking, mowing the lawn, but it cannot be from allowance or investments. If you don’t receive a W-2 for your summer job, be sure to create a detailed record of your earned income.
  2. Open up a Roth IRA. Open up a Roth IRA at a reputable custodian. If you are still a minor, ask a parent or guardian to open up a custodial Roth IRA and manage the assets on your behalf until you reach the age of majority.
  3. Determine how much you can contribute. Contributions to a Roth IRA account are not tax-deductible, and for 2019 the maximum contribution for a Roth IRA is $6,000 for individuals under 50 years of age. You need to have earned income for the year equal to or greater than the amount of your Roth IRA contribution. Note that you can withdraw your contributions to a Roth IRA at any time; however, you will pay taxes and penalties on any earnings withdrawn before age 59 ½, subject to certain exceptions.
  4. Contribute to your Roth IRA. You can contribute to your ROTH IRA up to the earlier of 1) the date you file your taxes or 2) the tax filing deadline for that year.

If you are saving your summer earnings for college expenses, etc., you can ask a parent or grandparent to contribute to a Roth IRA on your behalf or to match your contribution as a birthday or holiday gift. It is a great way for your family member to teach you the value of compounding and that a penny saved is worth much more than a penny earned.

It is never too early to start saving for retirement. For example, if you contribute $3,000 per year starting at age 16 to a Roth IRA, your next egg would accrue to over $1,000,000 in tax-free savings by age 68. Start saving now and that summer job will help ensure that you can enjoy your retirement from the beach!

Kerry B. Connell, CFP®

Kerry joined HTG in 2014. She helps clients create a picture of their financial goals and directs investments to attain those goals. Kerry is also involved in the firm’s management and strategic planning initiatives and contributes to HTG’s educational and networking efforts.

Kerry is a CERTIFIED FINANCIAL PLANNER™ practitioner. She has a BA degree from Tufts University and an MBA/JD from Northwestern University.