A Roth IRA for Your Teenager: How the Earned Income Rules Work for Physician Families

Your teenager just brought home a first paycheck from a summer job. Maybe it's from the pool where they lifeguard, the ice-cream shop down the street, or a few months of babysitting for the neighbors. It's not a lot of money by the standards of your household, but it's theirs, and it opens a door you may not realize is there: your teen may be eligible to contribute to a Roth IRA.

A Roth IRA (Roth Individual Retirement Account) has an eligibility rule for teens that is simpler than it sounds. It also comes with a few details that trip people up, especially in physician households where a parent owns a practice or where the teen's income comes from informal work. This article walks through how the earned income rule works, how a Roth IRA for a minor is established, what counts as earned income, and why paying your child from your practice is its own conversation.

Why a Teen Roth IRA Comes Up in Physician Households

Your own retirement savings probably run through an employer 401(k) or 403(b), and if your income is above the direct Roth IRA limits, you may already be familiar with the backdoor route. Your teenager is in a very different spot. A teen with a summer job usually has a small income and many years before retirement. That combination is what makes a Roth worth a look. If the rules are followed, qualified distributions come out tax-free.

There's also the time horizon. We won't put a number on what a contribution made today becomes, because nobody can predict future returns, but the length of a teenager's runway is the main reason this account gets attention. If you've read our overview of investing for doctors, the same long-term, low-cost, broadly diversified approach applies here, just on a much smaller scale and over a much longer stretch.

A teen Roth IRA also sits next to the college savings decisions you may already be making. If you're weighing where education dollars belong, our comparison of 529 plans, Roth IRAs, and taxable brokerage accounts for college savings covers how those accounts differ. This article stays focused on the teen's own Roth and the rules that govern it.

The starting point is the annual limit. According to the IRS page on IRA contribution limits, the 2026 limit is $7,500 for anyone under age 50. But for a teenager, the annual limit is rarely the number that matters. Earned income is.

The Core Rule: Earned Income Sets the Ceiling

A Roth IRA contribution for any year can't be more than the lesser of two numbers: the annual limit ($7,500 for 2026) or the person's taxable compensation for that year. For a teen, that usually means the contribution ceiling equals what they earned from working. If your daughter earned $3,200 lifeguarding this summer, her Roth IRA contribution for the year tops out at $3,200. If she earned $9,000, the cap is the $7,500 annual limit.

The IRS's definition of compensation is laid out in IRS Publication 590-A. In plain terms, compensation is money earned from working: wages, salaries, tips, and net earnings from self-employment. Interest and dividend income doesn't count as compensation.

The IRS says you can be any age to contribute to a Roth IRA. The question isn't how old your child is. It's whether they have earned income.

Here's how common sources of teen income usually line up against the earned income rule:

Edge cases do exist, and your CPA is the right person to confirm how a specific source of income is treated on your teen's return.

How a Roth IRA for a Minor Works

When the account owner is a minor, Treasury regulations say that a parent or guardian of a minor child may establish a Roth IRA on behalf of the child. The same regulations say that any contribution to a Roth IRA established for a minor must be supported by the child's own compensation for that tax year. That's why the earned income rule above is the part to get right.

The withdrawal rules are a big part of why people look at a Roth for a young saver. IRS Publication 590-B covers the basics. In short:

• Contributions (the dollars put in): per Pub. 590-B, a distribution that's a return of your regular contributions isn't included in your gross income.
• Earnings (the growth on those dollars) are tax-free if the distribution is qualified. "Qualified" means it's made after the 5-year period beginning with the first tax year a contribution was made, and it meets at least one of the following criteria: it's made on or after age 59½, because of disability, to a beneficiary after death, or for a first home (up to a $10,000 lifetime limit).
• Separately, Pub. 590-B describes a first-time homebuyer exception from the 10% additional tax on early distributions for up to $10,000 of distributions used to buy, build, or rebuild a first home.
• Per Pub. 590-A, contributions for a given tax year can be made during the year or by the due date for filing that year's return, not including extensions.

If the idea of opening an IRA for someone in your household based on someone else's income sounds familiar, that's the spousal IRA, and it's a different rule. A spouse can contribute based on the working spouse's compensation when filing jointly. A teenager can't borrow a parent's income that way. The teen's own earned income is the only thing that opens the door.

Babysitting, Lawn Care, and the Recordkeeping That Supports Them

Informal work can count. A teen who babysits for three families on the block, mows lawns, walks dogs, or tutors younger kids may be earning self-employment income, which is part of compensation. The challenge is that there's no W-2 to point to. If the IRS ever asked where a contribution came from, a record made at the time is far easier to rely on than a memory reconstructed years later.

A simple log tends to cover it. Here's what that record usually includes:

• The date of each job
• Who paid (a family name or business is enough)
• What the work was (babysitting two kids, mowing a front and back yard)
• Hours worked, if it's hourly work
• The amount received, plus any receipts, payment app records, or bank deposits that match

Tax filing is the other piece. Depending on how the work is classified, a teen with self-employment income may need to file a return. The IRS says you usually must pay self-employment tax (Social Security and Medicare) if net earnings from self-employment are $400 or more. How a particular arrangement is classified and reported is specific enough that a short conversation with your CPA usually settles it. A filed return that reports the income also serves as one more piece of documentation behind the Roth contribution.

Paying Your Child From Your Practice

If you own a practice, you've probably heard the idea of hiring your kids. How that arrangement works for payroll depends on how the practice is structured.

According to the IRS guidance on family employees, payments for the services of a child under age 18 are not subject to Social Security and Medicare taxes when the business is a sole proprietorship or a partnership in which both partners are the child's parents. When the business is a corporation, the IRS says payments for a child's services are subject to income tax withholding, Social Security, Medicare, and FUTA taxes regardless of age.

Which description fits your practice is a question for your CPA, and it's a place where their input matters more than any general article.

How a Teen Roth IRA Fits With College Planning

If your teen is college-bound, you may wonder whether a Roth IRA affects financial aid. How aid treats retirement accounts and withdrawals is a question for the financial aid office and your CPA. Whether aid is even on the table for your family is its own question, and our article on whether a physician income disqualifies your kids from college aid walks through how that tends to play out.

A teen Roth IRA isn't a substitute for a 529 plan. The Roth's main job is long-term retirement savings for your child, and its contribution ceiling is tied to their earnings, which limits how much can go in. There's also a newer connection between the two accounts: under certain conditions, section 529(c)(3)(E) of the Internal Revenue Code allows leftover 529 money to be rolled into the beneficiary's Roth IRA. Our article on the 529-to-Roth rollover option explains how that works. The statute limits the rollover amount by the beneficiary's annual Roth IRA contribution limit, reduced by contributions made that year to the beneficiary's IRAs, which is worth keeping in mind if your child is also making their own contributions.

The Money Conversation That Comes With It

The account balance may be the smaller part of the value. A teen Roth IRA gives you a natural reason to talk about money with your kid: what a paycheck is, why taxes come out of it, what it means to invest, and why time matters. Those conversations can be hard to start in the abstract. They're much easier when there's a real account with your child's name on it.

Here's what that conversation often looks like in practice. You might sit down together when the account is opened and walk through what a broadly diversified fund is in plain words. You might look at the statement together once or twice a year. You might let your teen decide how much of their own paycheck to contribute, so the choice belongs to them. You can also show them how the account can go down as well as up, which is just as useful a lesson.

Details That Commonly Trip Families Up

The rules aren't complicated, but a few details tend to come up when a teen Roth IRA gets reviewed:

• Contributing more than the teen earned. If the contribution exceeds earned income for the year, the excess is subject to a 6% excise tax for each year it stays in the account until it's corrected.
• Skipping documentation for informal work. A log made at the time carries more weight than a reconstructed estimate.
• Losing track of which tax year a contribution applies to, especially when contributing between January 1 and the filing deadline.

None of these are hard to avoid once you know about them. They do tend to surface when nobody's looking at the whole picture.

Getting Help Sorting Out the Details

A teen Roth IRA is a small account, but it touches several parts of your household's finances at once: your child's taxes, your college savings, and sometimes your practice payroll. Seeing how those pieces fit together is the kind of work our CFP® professionals do with physician families. Conversations like this one are often how we start to get to know a household.

If you'd like to talk through how a teen Roth IRA might fit your family, you can reach out through our Get Started page. We'll begin by learning what you and your family are working toward.

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