Fribble Saving at Fifteen

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By Jay Kirschbaum (jmkirschbaum@juno.com)
September 19, 2001

My daughter has been able to fund a Roth IRA with money that was not taxed and never will be! As a tax lawyer, this is like finding nirvana for me. She is 15 and had her first real job this summer as a camp counselor. 

She was dismayed, as we all are, to see the FICA hit, but since she would not be in a bracket where she owed any income tax and she is no longer subject to the kiddie tax, we filled out the W-4 so that she was exempt from any income tax withholding. We didn't spend a lot of time on that but we (meaning, of course, I) did not want to have to file a return to get her withholding back.

The light came on when she got her final paycheck. She had all of $580 dollars of earned income, all of which had gone straight into a passbook savings account for the time being. Since she also had some money from her allowance and from babysitting, she used those sources to finance her summer activities with friends and did not have to use a single dollar from her earnings as a camp counselor to pay for any of her fun activities.

Since her needs were satisfied with her allowance and babysitting funds, she was just going to leave her camp earnings in her savings account. We thought about how to put that to its best use when I realized that there is no age limit for setting up a Roth IRA. You just need taxable earnings, which her camp counselor pay certainly was (of course, the allowance and babysitting earnings can't be used in the determination of how much can be contributed to the Roth). 

My daughter and I discussed it. Since she did not want to spend any of that money anyway, the restrictions on a Roth IRA would be meaningless. She was especially impressed when she saw how much her money would compound by the time she is 65. The fact that it would never be taxed was of less interest to her than it was to me. However, she's only 15 and she's already begun saving for retirement. 

If only I had been nearly that smart at that age. It took me 25 years to figure it out, and I'm in the business! At least I've got one kid on the right track.