Question
My 16 year old son is working this summer and I wondered if he can contribute to an IRA?
Michael L., Des Moines, Iowa
Answer
Michael, your son is in luck, as he can contribute up to $5,000, or the amount of his earnings, whichever is less, to an IRA in 2009. You can even gift this amount to him, although this will count against the $13,000 annual gift amounts.
If a 16 year old contributes $5,000 to his Roth IRA (the most attractive IRA for younger workers) this year, it would be worth about $137,000 when he turns 65 and $193,000 at age 70, assuming an annual rate of return of 7% per year. You can imagine if he does this for the first ten years of his working career. He will retire a millionaire (whatever that may be worth when he retires)!
A Roth IRA is tax free when withdrawn and the funds can also be used for other purchases, such as a first home. In addition, these funds can be placed into a self-directed IRA to provide more flexibility in terms of available investment vehicles.
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