Ask Money

IRA contributions

Chris Farrell Jun 24, 2009

Question: My 18 year old daughter is graduating high school and going on to college. She has had odd jobs, but has earned no more than $600. I would like to open an IRA for her to get her thinking and planning for her future. Can I open an IRA for her for more than what she has earned? Thank you. Olga, Hasbrouck Heights, NJ

Answer: I think it’s a wonderful idea for her to open up an IRA. The contribution limit to an IRA if you’re under 50 is $5,000 (and its $6,000 if you’re 50 or over). However, the law says she can’t put more into an IRA than her earned income. So her limit is around $600. By the way, I would set up a Roth-IRA. When she retires several decades from now she can withdraw the gain with no tax liability. What’s more, the contributions are a stash of emergency money. She can always tap the contributions without penalty or tax.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.