Turning Early Earnings Into a Bright Financial Future

Young people across the country are taking on their first jobs. Do you remember your early work experiences? Did you mow lawns, lifeguard at the local pool or intern at a friend’s business? If you’re enjoying retirement and the fruits of a lifetime of discipline, these memories are more than nostalgia. They are a reminder of the first lessons in earning, saving and investing that shaped your journey to financial independence.

Today, you have a unique opportunity to help the next generation learn these lessons. You can help lay the foundation for their own financial security. With the benefit of experience and the resources to make a difference, you can guide your children and grandchildren as they take their first steps into the world of work and savings.

In this article, we’ll explore practical strategies to help young people get started. And we’ll place a special focus on how you can use your influence and support to give them a true head start.

Why Early Savings Matter

One of the most powerful lessons you can impart to young people is the value of starting early. Compounding is the process by which investment returns generate their own returns. And it offers enormous rewards to those who begin saving and investing as soon as possible. Even modest sums, when given decades to grow, can become meaningful amounts.

Consider this: If a 16-year-old saves $2,000 from a summer job and invests it in a Roth IRA, assuming a 7% annual return, that single contribution could grow to over $55,000 by age 65. If they make similar contributions for five summers, the total could exceed $240,000. The earlier they start, the greater the impact, which is something we’ve seen play out in the portfolios we manage over the years.

IRAs for Young Earners

Many young people working summer jobs or starting their careers are eligible to contribute to an IRA, even if their earnings are modest. For most, a Roth IRA is a good choice because contributions are made with after-tax dollars and qualified withdrawals in retirement are tax-free. This could be helpful for young workers, whose current tax rates are likely lower than they will be later in life.

How You Can Help

You can gift or match your child or grandchild’s earned income up to the annual IRA contribution limit (currently $7,000 for those under 50 in 2025). So if they earn $3,000 this year, that’s the maximum that can be invested in an IRA. The funds do not have to come from the young person’s own pocket—you can provide the cash for the contribution instead.

Consider making this an annual tradition, matching summer job earnings with a Roth IRA contribution each year.

And here’s why Roth IRAs are so powerful for young savers:

• Contributions can be withdrawn at any time, tax- and penalty-free, offering flexibility if funds are needed for education or a first home.
• Investment growth is never taxed if withdrawn properly in retirement.
• Starting early allows decades of tax-free compounding.

Other Savings Strategies for Young People

While IRAs are a powerful tool, they are not the only way to help young family members build good habits and financial security. Here are three more strategies:

• Custodial accounts (UGMA/UTMA): These accounts allow you to gift assets to a minor, who gains control at the age of majority. While not as tax-advantaged as IRAs, they are flexible and can be used for a variety of purposes.
• 529 college savings plans: If higher education is a goal, consider directing summer job earnings or matching gifts into a 529 plan. These accounts offer tax-free growth when used for qualified education expenses.
• Savings challenges: Encourage young people to set aside a portion of each paycheck and deposit this money into a high-yield savings account. Matching their savings can provide extra motivation.

Pairing With Other Estate Planning Techniques

Parents and grandparents may also use estate planning techniques to help younger generations start off right. For example, while not typically a primary savings vehicle for young people themselves, Crummey trusts can be a valuable tool for parents or grandparents to gift assets to minors while taking advantage of the annual gift tax exclusion. You might also consider directly paying education or medical expenses.

If you’re using these tools, we encourage you to make your child or grandchild aware of how you’re saving on their behalf as soon as you feel the time is right.

More often than not, these conversations are motivational and can help fuel a young person’s sense of personal responsibility, encouraging them to take the lead on investing in their future.

This can also set the table for conversations around asset allocation, planning and taxes, with you and your advisor as guides. You can help answer questions like “Should my custodial account or my Crummey trust have a more aggressive asset allocation?” and “When I need cash, which is the best account to take it from based on income or estate tax considerations or creditor protection?”

These conversations can be eye-opening and help demystify family wealth, making it more tangible in a way that’s manageable for a young person starting out in life. While receiving a surprise trust in one’s 30s would hardly ever be considered a bad thing, the ability to plan ahead is arguably more valuable. Financial literacy can help your child or grandchild navigate down payments, saving for retirement, career changes and anything else that might come their way.

Teaching the Habits That Last a Lifetime

While the mechanics of opening an account and contributing are important, the most valuable gift you can give is the wisdom of experience. Talk to your children and grandchildren about:

• The importance of living within their means
• The difference between saving and investing
• The value of patience and long-term thinking
• The lessons you learned from your own successes and mistakes

Many clients find that sharing stories, rather than giving advice, is the most effective way to inspire good habits. Invite your child or grandchild to join you for a conversation about investing or offer to review their first pay stub with them. These moments can become cherished memories and lasting lessons.

Five Steps To Make It Happen

If you’d like to help a child or grandchild open their first IRA or savings account, here’s how to get started:

1. Confirm earned income: The young person must have taxable earned income (from a job, not from investments or gifts) to contribute to an IRA.

2. Choose the right account: For most, a Roth IRA is the best choice. Many custodians offer accounts specifically for minors, and these are managed by an adult until the beneficiary reaches age 18 or 21.

3. Fund the account: You can provide the funds for the contribution, up to the amount of the young person’s earned income or the annual limit, whichever is less.

4. Select investments: Help choose a diversified, low-cost investment such as a total market index fund.

5. Celebrate the milestone: Mark the occasion with a family dinner or a handwritten note. Recognize the young person’s achievement and reinforce the importance of what they’ve started.

Your Legacy Is More Than Dollars

We believe that wealth is about more than financial security. It’s about purpose, meaning and the impact you have on those you love. Helping the next generation learn to save and invest is one of the most enduring gifts you can give. It’s a way to pass on not just assets but the values and habits that have served you well.

If you’d like to discuss strategies for supporting your children or grandchildren, or if you have questions about IRAs, 529 plans, or other savings tools, please reach out to your advisor. We’re here to help you make the most of every season, and we’re ready to help your family do the same.