How Your High-Schooler's Summer Job Could Set Them Up to Be a Millionaire

In the summer of 2021, close to 40% of U.S. teens had a summer job, according to Pew Research. This summer employment can do more than pad a teen's bank account and teach them responsibility. If the money is used wisely, it could actually help set your high schooler up to become a millionaire.

How could a summer job have such a big impact? It's simple -- if some of the money is invested in a Roth IRA, it could begin earning investment returns and could help put your high schooler on the path to substantial wealth.

Here's how a summer job could lead to millionaire status

When high schoolers start to earn money, they become eligible to invest those funds in a Roth IRA.

Roth IRA accounts can be opened at any brokerage firm, and in 2023, you can contribute a maximum of $6,500 if you're under age 50 (although you're only allowed to contribute up to the amount of your taxable compensation for the year). You do not get to claim a tax deduction for the money in the year you make your contribution, but you do get to make tax-free withdrawals in retirement.

Many high school students don't make enough from their summer jobs to have to pay taxes on their income, so they have the unique opportunity to contribute to a Roth IRA with income they don't pay taxes on anyway. And if they start investing that money, they can benefit from compound growth that helps them end up with a substantial account balance they can enjoy tax free as a retiree.

Since high schoolers are young, they have a substantial amount of time for compound growth to work in their favor. That means making contributions from a high-school job could go a long way towards helping them become a future millionaire.

In fact, let's say a high school student who was 17 contributed the maximum $6,500 they were allowed to contribute to a Roth IRA (assuming they earned that much over the summer). If they earned a 10% average annual return and the money was left in their account for 50 years until they were 67, this single contribution would leave them with $763,040.54.

They would be three-quarters of the way to becoming a millionaire retiree without ever making a single additional contribution!

You can help set your high schooler up for success

If you want to help your high schooler become a millionaire, it's pretty easy to do it. You can open a custodial IRA for them at many brokerage firms and encourage them to start investing ASAP. Even if they can't afford to invest the full $6,500, any contributions they are able to make will go a long way towards helping them build wealth since they have the power of time on their hands.

If you have the money, you can also offer to "match" their contributions so they don't end up with no spending money from their summer jobs since they're funneling it into a Roth IRA. For example, if your teen makes $1,000 and is willing to contribute half the amount to their IRA, you could invest another $500 on their behalf to account for the total $1,000 your child had in earnings. Just remember, they can only contribute up to their annual earned income.

Encouraging your child to do this now will pay off big time when they retire rich, thanks to their early efforts to save and invest.