I am a high-school Senior who will not earn enough income working this summer to have to pay income taxes. I have a full ride to college, so I was thinking of using my earnings/savings for retirement. Does putting my earnings in a Roth IRA mean that I wouldn't be paying taxes on those savings at either end (since I don't pay income taxes now, and you don't pay taxes when you withdraw from a Roth IRA in retirement)? Or am I not eligible for the Roth IRA?

Edit: If I understand correctly, I can only put money in a Roth IRA that I earned by working? (So not my previous college savings, which were a mix of earned and gifted from relatives).

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    Congratulations on the scholarship and good for you working a summer job and saving.
    – Matthew
    Mar 17, 2021 at 2:21
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    As someone in their early 40s the best advice I can give you is start your retirement as EARLY as possible and NEVER stop contributing to it. Short answer YES open a ROTH IRA. You are allowed a max of 6k yearly (currently for 2021) and it does not matter where this money comes from be it a gift or earnings as long as you can put up to 6k for the entire year you are good. Great job on the scholarship.
    – JonH
    Mar 17, 2021 at 16:41
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    I calculated a few years back that if I had put 20% of every paycheck into an investment account starting with my first job, I could have retired with a perpetual $80k per year salary by the age of 33! So while I can't agree strongly enough with your decision to save, as you start earning more and build that IRA up start moving some contributions to accounts you can touch at a younger age. Having something to bridge the gap until retirement (as the 'original contributions' that you can take out before 59 may not be sufficient) keeps early retirement as an option for you.
    – Nicholas
    Mar 17, 2021 at 18:19
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    Welcome new user ......... thank God you are not here because you want to buy a car :O
    – Fattie
    Mar 17, 2021 at 19:10
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    The moment my kids had jobs with a W2 (earned income) I started Roth IRAs for them. The difference is I let them keep their paychecks (they have to learn to save and plan for their money with something) and funded them myself to set them off early.
    – Jon Custer
    Mar 17, 2021 at 23:23

6 Answers 6


You are correct that if your income is low enough that you don't have to pay taxes, then a Roth will let you avoid taxation at both ends, because Roth withdrawals are tax-free.

You are also correct that you can contribute only earned income to the Roth. More specifically, you cannot contribute more to the Roth than your taxable compensation in that tax year. (Note that there are additional limitations besides this that may be lower, but based on what you said it sounds like you would not be hitting those. See this IRS page.) So even if you have money that you earned by working in previous tax years, it's too late for that to matter for contributing to the Roth; this year you can only contribute up to the amount you earn during this year.

However, if you are working during the summer and have enough money that you don't need that income (e.g., you are still living with your parents), putting all or most of your pay into a Roth can be a great idea. Even if you only earn a small amount of money, getting it invested early can produce huge gains over a long period of time. Your decision to begin saving for retirement now is wise and your future self will undoubtedly thank you for your foresight!

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    It's wise only insofar this investment doesn't cripple opportunities to e.g. take a loan for a house (because you have less funds you need to take out a higher, more risky loan), or introduce short to medium term cash flow issues because you will be spending large sums of money on e.g. a car or a home in the not so faraway future.
    – rubenvb
    Mar 17, 2021 at 11:38
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    @sharptooth Yes, you can, based on the above. The only thing the IRS cares about is how much money you earn, and how much you put into the Roth. They don't track what happens with the money once you have it, which accounts you store it in, etc. This is as long as your million dollar deposit was all above board of course.
    – Najel
    Mar 17, 2021 at 13:32
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    @sharptooth Money is "fungible"..."able to replace or be replaced by another identical item; mutually interchangeable". So getting 1 (unit of your choice) and spending 1 is identical to getting 1, swapping it with 1 that you had saved, and spending the 1 that you had saved...so identical that you don't have to go through the intermediate step. (This causes all kinds of mental problems for people who want to fund X but not Y--but the thing they want to fund does both X and Y.) Mar 17, 2021 at 13:45
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    "… it's too late for that to matter for contributing to the Roth; this year you can only contribute up to the amount you earn during this year." – If you earned money in 2020, can't you contribute it as a prior-year contribution any time between January 1, 2021 and April 15, 2021? I believe the US Tax Code says that prior-year contributions are always treated as though they had been made on December 31 of the prior year. Mar 17, 2021 at 14:37
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    @rubenvb There are early withdrawal provisions for Roth IRA's for things like first home purchase, educational expenses, etc. As long as the conditions are met, the money initially invested can be taken back out without penalty.
    – anjama
    Mar 17, 2021 at 17:24

If you can assume:

  • you know that watching your real IRA grow isn't a better teacher than watching a simulated portfolio, and
  • you're starting a high-paying job post-graduation

Then no, I wouldn't recommend putting your high-value dollars into an IRA now. Save it instead of risking you'll need the money, then invest it all once you build up an emergency fund.

If -- after watching your high school $x amount in your Roth IRA grow to $2x or $4x by the time you have paid off some undergrad loans and have spare investing money -- that now convinces you to make solid contributions to your IRA/401k, then that's a good lesson to learn and it costs much less than $x opportunity dollars. But you could start a simulated retirement profile with $100k and watch that grow instead.

I don't think I needed that lesson; I've always been savings-minded.

After 4 years of undergrad and paying for wedding and moving, I had less than $x left in savings. It would have decreased my stress to have instead kept that original $x dollars in savings, so I didn't have to consider any withdrawal penalty.

After a year of working, my savings was around $30x and I'd contributed around $6x to my 401k. The marginal value of those $x dollars was higher to me at the end of high school and at the end of college, vs. once I had a full time job making 3 times as much as I made in high school / college. Based on that logic, I should have also kept more low-interest student-loan debt when that was an option, instead of using savings. But they don't teach these things in high school. </personal-story>

  • If the OP invests $6,000 at 5% until age 65... it's ~$60k if invested at age 18 and ~$45k if invested at age 24. But what's the marginal value of $15k at age 65? Probably more than the marginal value of $6k at age 18 or even age 24, since a young person has more opportunities to save money and/or pick up a side hustle and/or beg from family. If your savings run low at age 65, you will really be stressed out. Maybe the OP can find the willpower to tighten their belt even if the money is in an account that doesn't have withdrawal penalties, though. Mar 17, 2021 at 19:31
  • OP could invest $6k at 18 with a $0 emergency fund, or they could have a $6k emergency fund, invest ~$8k at age 24, and still reach $60k. So it costs $2k in lost earnings to keep that emergency fund. Maybe it's fine to have a $0 emergency fund while at college -- i'll concede that's a question of risk tolerance.
    – Carl Walsh
    Mar 17, 2021 at 19:44
  • Although I personally would still lean toward recommending savings for someone in the OPs position, this answer highlights the concerns about the lost opportunity costs and marginal value -- Is $100 to a high-schooler worth more than $1600 at age 59? Maybe, maybe not, so +1. Alternatively, since Roth contributions can be withdrawn penalty free, another option is to save in a Roth in a very conservative portfolio and treat that as an emergency fund. If you need it, it's there, if you don't you have a bit of a head-start.
    – PGnome
    Mar 17, 2021 at 19:57
  • If your investing at 5% your aiming too low.
    – FrozenKiwi
    Mar 18, 2021 at 10:23
  • @FrozenKiwi I went with conservative numbers to avoid argument...obviously the difference would only be greater if the investment performs better than that. Mar 22, 2021 at 15:33


You are not paying taxes now and presumably for the next few years. A brokerage account would give you the same benefits of Roth IRA except you have access to the money if you need it.

You know when you might be have to start paying taxes. The year before you graduate so you could realize all the gains you have or if you left them along they would be in capital gains time so you could let it ride.

I would bet the average college graduate with their first job isn't able to max out both their IRA and 401k. So you will have time to move some of the money into an IRA then, or would just be able to contribute more as you would have this brokerage account.

  • This is -by far- the best answer of the lot. It deals with OP's actual tax situation and gives him advice with the highest risk-adjusted return. The answers with "put it in a savings account" are advocating that OP lose money
    – FrozenKiwi
    Mar 18, 2021 at 10:40

My kids did this exact thing.

We had talked about putting money into a retirement fund. The Roth IRA made the most sense because they if they paid income tax on the contribution (0%) they could withdraw it tax free in retirement. The general guidance is that if the tax rate in retirement will be higher, then you want to use a Roth.

One of the best parts about IRA contributions is that you can wait until April to make the contribution, so you can wait until you know how much you can contribute.

If I understand correctly, I can only put money in a Roth IRA that I earned by working? (So not my previous college savings, which were a mix of earned and gifted from relatives).

You need to decide how much you want to contribute. There are annual limits, linked to either your income or $6,000 whichever is lower. The actual money can come from your savings account, or even a gift from a parent, or grandparent. The limit is linked to your income, but the funds can come from anywhere.


There are a couple of options for you with nearly equal value. It mainly depends on your goals, but the differences in outcome are minimal. Are you attempting to get a head start on retirement? Are you just trying to get your extra money to work for you?

  1. Roth IRA. This option is fine because you will never have to pay taxes on this money, and you can withdraw whatever you put in at any time. However, any investment gains you see will have to wait until retirement. In that respect, a Roth IRA can basically be treated like a savings account that gives some small benefit to retirement.

  2. Taxable brokerage. This option is also fine because with your low income, it is unlikely that you will pay any taxes on this money. If you hold onto your investments for at least a year, and you remain in a low tax bracket, you will pay nothing. If you sell your investments in less than a year, and you are in the lowest tax bracket, you will still not have to pay any taxes. You can realize your gains and use them to help fund your near future expenses.

If you are primarily concerned with saving for retirement, go with the Roth IRA. If you want additional flexibility to use all of the money you invest now, go with the taxable brokerage. Ultimately, either will be fine. Personally, I would go for the taxable brokerage for now since you will have a lot to pay for in college and not a lot of money to work with.


This is a great question and the answer is a bit dependent upon other factors in your life. Presumably you earned less than $400, not a lot, although you should be proud. To me it boils down to how can we change that into "life-changing money"?

Putting it in a Roth is a great idea and certainly not a bad one. For every $100 you invest in a Roth it will grow to about $2,400 in today's dollars in 47 years (when you are 65). A good idea, but not really life-changing money.

Some would be far better served to put this money in a simple savings account. The most important thing they could do is increase their lifetime earning potential. That might mean going to college, or obtaining a skilled trade. Scholarships can go away, or not provide for all anticipated needs so protecting against that those negative events is the best way to transform this into life changing money. Income is the highest correlation to becoming wealthy according to The Millionaire Next Door.

Some would advocate putting into a Roth anyway as contributions can be withdrawn. I would not do this as there is a 5-year holding period and presumably this person would be out of college by then.

I don't think that is you, however, Roth is probably best. You already have college savings and presumably a very supportive family. Not everyone has that, consider yourself blessed please. Yes, you can only contribute earned income.

Great work on all including earning some from a summer job.

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    Why do you say less $400? All we know is doesn't need to pay taxes, so probably less than $12,200. If they got a crummy job working 10 weeks, 20 hours a week, at minimum wage ($7.25), they made $1,450... If they got a peachy internship making $20 an hour, 40 hours a week, for 10 weeks, that's $8000. Mar 17, 2021 at 13:53
  • @user3067860 I got confused with no W2, still same principle applies.
    – Pete B.
    Mar 17, 2021 at 18:51
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    I'm not sure the 5 year holding period applies in this situation, at least in the way that you present it. It seems like you are saying that OP cannot withdraw contributions for 5 years, which is not true.
    – BlackThorn
    Mar 18, 2021 at 15:56
  • For every $100, $2400, in real dollars. My 22 year old has been depositing since she started babysitting at 12. $60,000 Roth as of now. That $1.4M in the same 24 years. With no further deposits. Mar 20, 2021 at 1:52

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