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Money Smartz ~> Mad Money ~> Next Article (Negotiating Your Way to a Bigger Allowance)

So Ya Wanna Be a

By Marie Havenga

Here's a Rundown on the Rules:

Income must be earned. Forget using money you received from Aunt Susie in your birthday card. But if you have income from babysitting, mowing lawns, or a job, invest away!

Annual contributions are limited to $2,000 or 100% of earned income, whichever is less. Of course, the IRS will require you to report all income, although many teens owe little or no tax.

You can withdraw the money any time after age 59½ without penalty or taxes. Here's a cool secret: with a Roth, you can also withdraw your original contributions (not earnings) at any time without penalty — which might come in handy for a down payment on a house someday. But, keep in mind, withdrawals always cut into your earning potential and your retirement nest egg.

How to Get Started:
The best advice is to start now. Talk to your parents about a Roth IRA and ask if they'll be willing to serve as guardians until you're of legal age. If they happen to look at you with a blank stare, give them a heads-up and encourage them to start investing in their own Roth. It's always better to start early, but it's never too late.

Several no-load mutual fund families are open to IRAs for minors. No-load means you don't have to pay sales charges or commissions, which keeps all of your investment working for you instead of having some of your hard-earned dollars sliced off the top. Simply call the toll-free numbers below, and request an application for a Roth IRA for minors.

American Century: (800) 345-2021
Janus: (800) 525-8983
T. Rowe Price: (800) 638-5660
Vanguard (800) 851-4999

Be aware that most funds charge an annual maintenance fee for IRAs, typically $10 to $15 — a small price to pay on your road to riches.

Forget the hit TV game show. If you're a teenager and you want to be a millionaire, head out the door and grab a Roth IRA (Individual Retirement Arrangement) application.
Get this: if you invest only $20 a week in a Roth IRA, you'll be more than a millionaire at age 65. Pretty hiip payoff, huh? And you won't have to pay income taxes when you withdraw the money at retirement. It's all your, free and clear.
For example, if you're 14 and invest $20 a week starting now, you would waltz into retirement with a whopping $1,532,083, based on only a 10% return in mutual funds.
It gets better. As your salary grows, you may choose to increase your weekly deposit to $38.46. That's $2,000 a year, the maximum allowed under current IRS rules. (Multi-millionaire has a nice ring to it, doesn't it?)
Most IRA rules are the same for young people as adults, with one exception — if you're under 18, your parents will have to serve as "guardians" of your account until you reach adulthood.

How Much Can You Stash?
Find your age below. If you start now and invest $20 a week in a Roth IRA, here's what the fund will be worth when you turn 65 — based on a 10% annual return:

YOUR
AGE

12 — $1,871,856
13 — $1,693,518
14 — $1,532,083
15 — $1,385,951
16 — $1,253,670
17 — $1,133,928
18 — $1,025,535

Roth who?
Named after Senat Finance Committee Chairman William V. Roth, Jr., a Roth IRA is a snazzy retirement vehicle that allows you to invest up to $2,000 of your earned income per year. You don't pay taxes on interest or dividends, and your withdrawals at retirement are tax free.