Gonna help my 16 year old sister get a Roth IRA and learn from my mistakes of not starting early... Should we park it in a target date fund or index fund (VTWAX or the like) ?

likeupliftingsmart
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First, congrats on helping your sis set up for success! VTSAX works like a charm.

likeuplifting

Anything that follows s&p 500 or total stock market index (.02-.03% exp ratio) nd you will be solid. Don’t do target date, expense ratio will be more than like 15x than you should be paying.

likesmart

VTSAX is great. The target date is more diversified but cost more. It is about 3 or for times more but still more. Until they get a decent amount I agree a total market is fine but so is a target date. The key is just starting early

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Assuming she has earned income. Either would be great options. I would probably use VTSAX or VTWAX. The longest target date index (2065?) would be fine too. I think the key is just starting early. I would not worry as much about the details until she has more.

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My kiddo voluntarily brought up how to start a retirement fund (at 17) with some of their saved income from Domino’s. I ran with it, set them up with a Roth IRA for Minor at Fidelity, and told them M&D would match their top SAT score. So they put in $1300 of their savings to start, we put in $1440 for the SAT in 2019, and for 2020 they contributed another $800. All those 2019-2020 contribs were totally tax free money to kiddo, since their earned income was so low. It’s invested in FDEWX (Fidelity 2055 target date fund) which has only a 0.12% expense ratio, which I consider quite reasonable for this scenario. So kiddo’s got total contributions (of tax free money) of $3540 which they could withdraw anytime without penalty or tax, and a total balance of $4688 right now. Mama proud.

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Key is to make sure they have enough income and that it can be supported in some way. I did something very similar with my daughter.

P.S. You’re a great sibling to facilitate this for your sister.

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