How High School Students Can Become Millionaires


Photo courtesy Shutterstock

Zachary Powers

There is good news for high schoolers: Becoming a millionaire in the United States is surprisingly easier than some may think.

Most students are able to start down the path to growing a lifetime of wealth with just the help of a parent. Let’s break down the main ways people can become millionaires – and how high schoolers can start now.

Any high school student who has filed a tax return or made income – meaning, someone who has worked and paid taxes – can legally start a retirement custodial account. A custodial account is an account owned by the student, but the parent or parents of the student act as a guardian of the account, and for that reason the account is listed under an adult’s name. However, once a teen turns 18, the account will roll over onto the student’s name permanently.

Here are a few accounts one could choose to open: A Roth IRA, a Regular IRA, or a 401(k). You may only contribute to your retirement account what you have earned in reported annual income. That means you can’t contribute $6,000 if you only told the IRS you earned $5,000 this year.

In a Roth IRA, any money put into the account has already been taxed; the money was most likely taxed from a paycheck, for example. That means when it comes time to withdraw money from the account when you reach age 59 and a half, the money is completely tax-free. A Roth IRA has a maximum annual contribution limit of $6,000. The Roth is especially popular because most teens’ annual income doesn’t meet the threshhold for paying income taxes, making these contributions essentially tax-free.

A regular IRA does the opposite: money deposited is tax-free or tax-deferred, meaning someone can write off their IRA contributions. Once withdrawn at age 59 and a half, the money will be taxed instead at your level of ordinary income, instead of being tax-free like the Roth. The regular IRA also has an annual contribution limit of $6,000.

The last account is the 401(k). This is the most popular of the three because of employer-sponsored programs. Essentially, employers will choose the retirement accounts to invest in for their employees. Money that goes into the account will come from withheld money from a paycheck. This money will enter the account pre-tax, meaning people can lower their taxable income for the year through this method. However, the money will be taxed upon withdrawal at age 59 and a half, like the regular IRA. The contribution limit for the year is $19,500. The IRS just announced that this contribution ceiling will be raised next year to $20,500.

What is the purpose of starting a retirement account this early? The answer is simple: compound growth. This means that the more time the money in the account can grow and accrue interest, the higher the money can go. It is an exponential curve.

For example, if you start an account with $6,000 and you decide to contribute $100  a month for the next 50 years, then that original $6,000 could turn into $2.1 million – a result based on a conservative estimate of an 8 percent interest rate. The average return on stock market investments is about 10 percent.

However, if one decides to start investing in their later years – say, 40 years old, with plans to retire at 65 – then think again. The power of compound growth won’t be as good as if it was started in the teenage years. Their $6,000 investment only would grow to $183,000. The proof is in the numbers, contributing to a retirement account as early as one possibly can, can benefit them significantly in the long run. 

Starting a retirement account is a great way for high school students to get started on the path to wealth accumulation and without the need of starting a business. High schoolers don’t even need to know what to invest in because the companies that students open the account through can automate it and do it for them.

Students should make sure to conduct some of their own research and talk to their parents to see what options are best suited for their needs. Good luck on your path to millionaire status!