New on FinoLib · Volume V: Personal Finance
I have added a new article to FinoLib, my finance education website: Teen Savings Accounts and College Aid: Whose Name Matters, part of Volume V: Personal Finance. It is part 2 of a 2-part guide. This page gives you the core of the topic in expert but plain language; the full article goes much deeper.
A closer look
Where college costs fit. The 2027–28 FAFSA opened on September 23, 2026, and it is the gateway to federal grants, work-study and federal loans. Section 4.6 covers grants and education tax credits before borrowing; Part 4 covers student loans and their 2026 repayment rules.
Under the hood
Under the Hood: Why Whose Name Is on the Account Matters for College Aid
The FAFSA turns savings into an expected payment through fixed rates in the Student Aid Index (SAI) formula. A dependent student’s own reportable assets count at a flat 20%. Parents’ assets are first reduced by an asset protection allowance, then converted at 12%, and the result passes through a contribution schedule of 22% to 47%, so each parental dollar adds at most 12% × 47% = 5.64 cents. Retirement accounts, a student’s Roth IRA included, are not on the list of reportable assets in the 2027–28 SAI guide.
Decision rule
Route each check from a first job in this order. (1) Move a fixed slice to a savings account the day it arrives until it holds $500. (2) Money you will not need for at least five years goes into a custodial Roth IRA, up to the lesser of your earned income for the year or $7,500 (2026). (3) Money for anything within five years, such as a car, a laptop or a college deposit, stays in savings. (4) Spend the rest by plan.
The costliest mistake
Sending money back from a check that has not cleared. A “mystery shopper” or remote-assistant job mails a $2,450 check and asks you to keep $450 as pay and send $2,000 on by gift card, Zelle or crypto. By law banks must make deposited funds available quickly, so the money appears in your balance; but a fake check can take weeks to be discovered, and when it is, the bank reverses the $2,450 and you must repay whatever you spent from it (FTC). The $2,000 you sent cannot be recalled.
Why It Matters
Time does most of the compounding. $1,000 placed in a Roth IRA at 16 and left for 50 years at an assumed 7% average annual return (the assumption Parts 6 and 7 use — not a promise) grows to $1,000 × 1.07^50 ≈ $29,457, tax-free under the Roth rules. The same $1,000 contributed at 36 gets 30 years: $1,000 × 1.07^30 ≈ $7,612.
Edge Cases: When the Standard Answer Changes
The summer-job example assumes a payroll job, a dependent with only wages, and no accounts in the teen’s name. These situations change the tax, the paperwork or who controls the money: Situation What changes Why Number or rule Working for a parent’s sole proprietorship, under 18 No Social Security or Medicare tax Family employment is excluded from FICA Also for a partnership of the child’s parents; not for a parent’s corporation (IRS Pub.
Recap
Your first paycheck is smaller than hours × wage because FICA takes 7.65% at any age and payroll withholds federal income tax as if you earned that check every pay period of the year. A dependent with only a summer job usually owes no income tax at all: on 2026’s rules a $4,800 job is covered by a standard deduction of earned income + $450, so the $240.64 withheld comes…
More from the article
■Fake jobs and overpayment checks — you deposit their check and send part back; days or even weeks later the check bounces, and the money you sent is gone.
■Money-mule offers — being paid to “receive and forward” funds launders stolen money and can carry legal consequences for you.
■Paying for free aid — the FAFSA is free at studentaid.gov; a fee to “file” it or “unlock” a scholarship is a red flag.
■Irreversible payments — rental deposits, tickets or “investment coaching” paid by Zelle, gift card or crypto cannot be clawed back (2.3).
■Working for a parent’s sole proprietorship, under 18 — No Social Security or Medicare tax — Family employment is excluded from FICA
■Babysitting or yard work as a household employee, under 18 — The family need not withhold FICA — Household work by an under-18 is exempt unless it is the worker’s principal occupation; for a student it never is
■Paid directly by clients, no W-2 — Self-employment tax and a required return — No employer pays half the FICA
What the full article covers
The full article includes a look under the hood at the mechanics, a clear decision rule, the one mistake that costs people the most, a recap, a reveal-on-click quiz and the official sources behind every figure.
Volume V: Personal Finance
Read the full article on FinoLib
The complete article, Teen Savings Accounts and College Aid: Whose Name Matters, with every worked example, diagram, quiz and source, is free to read in Volume V, Personal Finance on finolib.com.
Explore the Finance Education Series: Vol. II — Capital Markets · Vol. I — Global Economy · Vol. III — Finance Encyclopedia · Vol. IV — Finance Careers · Vol. V — Personal Finance