Summer Income Needs a Plan

When kids start earning money, especially from summer jobs, it’s a huge opportunity. Not just to build savings, but to build financial clarity and habits that can last a lifetime.

The biggest mistake?

Telling them to “just save” without giving that money a job.

Start With Purpose, Not Accounts

Before choosing where money goes, help your child define why they’re saving. Every dollar should fall into a category:

Free Spending: Money they can enjoy guilt-free
Short-Term Goals: A car, travel, or big purchase
Mid-Term Goals: College or trade school
Long-Term Goals: First home or retirement

This framework gives meaning to their decisions and makes tradeoffs real.

Match the Account to the Goal

Once the purpose is clear, then you can choose the right type of account:

1. Savings Account

Best for: Spending money or short-term goals

+Easy access
+Stable (low risk, low growth)
+Great for teaching budgeting habits
+Can be funded with any money source (gifts, allowance, income)
-Calculated into FASFA (may reduce financial aid eligibility)

This money can be saved as cash on hand, Venmo, savings, and checking at a local bank or credit union.

2. UTMA (Uniform Transfers to Minors Act Account)

Best for: Mid-term investing (college, general wealth building)

+Owned by the child, managed by a custodian
+Flexible use (not limited to education)
+/- Becomes the child’s asset at adulthood
+Ability to be invested for growth
+Can be funded with any money source (gifts, allowance, income)
-Calculated into FASFA (may reduce financial aid eligibility)

3. Traditional IRA

Best for: Long-term retirement savings

-Requires earned income
+Contributions may be tax-deductible
-Withdrawals in retirement are taxed as income
+Not calculated into FASFA

4. Roth IRA (my favorite!)

Best for: Flexible, long-term growth, tax-free growth

+/- Contributions are made after-tax
+++Money grows tax-free
+Contributions (not earnings) can be withdrawn anytime
+Not calculated into FASFA (early withdrawal of earnings may count as income)

Why a Roth IRA is So Powerful for Kids

If your child has earned income, a Roth IRA can be one of the most impactful tools available.

Not only does it offer decades of tax-free growth, but it also has flexibility that surprises many people. Roth IRA funds can be accessed penalty-free (though sometimes taxes may still apply on earnings) for:

First-time home purchase (up to $10,000 of earnings)
Qualified education expenses
Certain medical expenses or health insurance during unemployment
Disability

And importantly:

Contributions can always be withdrawn tax- and penalty-free

This makes the Roth IRA a powerful “hybrid” account—retirement-focused but not completely locked away. Most likely your child is in the lowest tax bracket they will ever be in, which makes a Roth IRA extremely beneficial.

To qualify as earned income, your child will need a W2, 1099, or file as self-employed.

The Real Lesson: Money Needs a Job

The goal isn’t just to build savings—it’s to build decision-making skills.

When kids understand:

What they’re saving for
Why it matters
Where it should go

They begin to think differently about money.

They stop asking, “Can I afford this?”

And start asking, “Is this worth giving up my goal?”

That mindset shift is what turns a summer job into a lifelong advantage.

This is for educational and informational purposes only and is not research or a recommendation regarding any security or investment strategy. Securities offered through IFP Securities, LLC, dba Independent Financial Partners (IFP), member FINRA/SIPC. Investment advice offered through IFP Advisors, LLC, dba Independent Financial Partners (IFP), a Registered Investment Advisor. IFP and Callesen Wealth Management are not affiliated.