In order to qualify for an IRA you must have a job.  This can be a part-time or a by-the-hour contract job such as babysitting, lawn mowing or snow removal.  Your income must be reported to the Government.  Your employer should provide a W-4 form which shows your tax withholding, or a W-2, which shows how much you earned during the year.  Or you can just file a regular tax return if your income is less than $4,400.  This way the Government has a record of your having a job.  Even if you don’t earn enough money to pay taxes, you can at least prove you had a job.  But you MUST file.

If you do earn money, report it to the Government, and are willing to put your money away for a very long time, than look into IRAs.  Let’s see what $1,000 gets you.

Example:  At 18 you open a Roth IRA (see below) account with $1,000, and each year you put in $1,000.  You expect to retire at age 70 and your life expectancy is 90.  Furthermore, let’s say you expect your annual return on your Roth IRA to be 8.0%.  When you retire, your IRA fund balance will be $726,031.55.  Your annual income from your Roth IRA would be $73,947.92, Tax Free!  Not bad for putting in only $1,000 a year!

Although the desire for an IRA seems long range for most of us, some of you may qualify, and wish to establish an IRA now.  You can invest in an IRA for minors if you are less than 18 years-old.

The Government limits how much you can put into an IRA.  You can put in any amount from a few hundred dollars to the maximum; check with your IRA provider.  The government has always put a set amount, for example $5,000 for individuals 49 and under.  Starting in 2010 they will take that amount and adjust it for inflation.  Let us say inflation (the price of goods and services based on the consumer price index (CPI) (see Economic Indicators & Other Causes That Can Affect Stock Prices Other Than Company News), goes up 2%.  Then in 2010 your maximum contribution amount would be $5,100 ($5000 x 1.02%)


BASED ON AGE FOR 2012 & 2013

YEAR AGE 49 & Below Age 50 & Above
2012 $5,000 $6,000
2013 $5,500 $6,500