If your child spent the summer lifeguarding, babysitting, working at a restaurant, mowing lawns, or earning money another way, they may have unlocked something more valuable than a paycheck:
The ability to contribute to a Roth IRA.
A Roth IRA allows after-tax money to be invested for retirement, with qualified withdrawals ultimately coming out tax-free. For a young person, starting early gives those investments decades to grow.
How much can your child contribute in 2026?
For 2026, total IRA contributions are limited to the lesser of:
- $7,500, or
- The child's taxable compensation for the year
So if a teenager earns $2,500 at a summer job, their maximum IRA contribution for the year is $2,500.
If they earn $10,000, the 2026 IRA limit caps the contribution at $7,500.
The IRS defines compensation to include wages, salaries, tips, and other amounts received for providing personal services. Net earnings from self-employment can also count.
Does the child have to contribute their actual paycheck?
No.
The child's compensation determines how much can be contributed, but the contribution does not have to come from the exact dollars they earned.
For example, Maya earns $3,000 working as a lifeguard over the summer.
Maya could keep some or all of those earnings, while her parents or grandparents provide the $3,000 deposited into her Roth IRA.
The important requirement is that Maya had at least $3,000 of eligible compensation for the year.
What types of summer income count?
Common examples include:
- Wages from a summer job
- Tips reported as income
- Babysitting income
- Lawn-care or other service income
- Net earnings from self-employment
- Compensation from legitimate household employment
A W-2 summer job provides a straightforward record of wages.
Self-employment is different. For IRA purposes, the relevant amount is generally net earnings, not simply the total amount collected from customers.
Why can starting this young matter?
The biggest advantage a young Roth IRA owner has is time.
Someone who begins investing at 16 has many more years for returns to compound than someone who starts at 30.
That does not guarantee a particular outcome - investments can gain or lose value - but starting earlier gives the money a longer potential growth period.
Roth IRAs also provide another important advantage: qualified retirement distributions are tax-free, provided the applicable Roth IRA requirements are satisfied.
What if your child didn't have a traditional summer job?
Working for a company is not the only way a child can earn compensation.
Children can also earn income through self-employment or legitimate household employment.
For example, a child performing actual household tasks such as yard work may receive compensation when a genuine employment arrangement exists and the work and payments are properly documented.
The same contribution rule applies: the Roth IRA contribution cannot exceed the child's eligible compensation for the year.
Where Halfmore fits
Halfmore helps families establish and manage legitimate household employment when a child performs work around the home.
Halfmore:
- Records assigned household tasks
- Captures completed work
- Calculates and processes payments
- Maintains task and payment records
- Generates applicable payroll and tax documentation
- Coordinates contributions with the family's selected custodial Roth IRA provider
So even if a child did not spend the summer working at a restaurant or local business, household employment may provide another path to earning compensation.
The bottom line
If your child earned money this summer, don't overlook the Roth IRA opportunity.
For 2026:
- The child must have eligible compensation.
- Contributions cannot exceed that compensation.
- The annual IRA limit is $7,500.
- A parent or grandparent can provide the money deposited into the account.
- Starting young gives investments more time to potentially compound.
A summer job may last only a few months. A Roth IRA opened with those earnings can remain with your child for decades.
See how Halfmore helps families document household employment and begin funding a custodial Roth IRA.
Sources
Any information provided does not constitute tax, legal, or accounting advice. These materials are intended for general informational purposes and should be relied upon as specific advice. Any communication through email constitutes subject matter should still be considered of a general discussion nature. U.S. Treasury regulations require us to provide the information contained in paragraph to you. Unless expressed stated otherwise, any U.S. federal tax advice contained in this publication was not intended or written to be used by any taxpayer for the purpose of avoiding any penalties that may be imposed by the U.S. Internal Revenue Service.
