Opening a Roth IRA for Your Child: What Parents Need to Know

Yes, you can open a Roth IRA for your child, but only if they have earned income

A child can own a Roth IRA at any age, but there is one hard requirement: they must have earned income from work. This means money they received from a job, self-employment, modeling, acting, or other work they actually performed—not allowance, gifts, or investment returns. The Roth IRA contribution limit for your child cannot exceed the amount of earned income they received that year, whichever is smaller.

You cannot contribute to a Roth IRA on behalf of a child who has no earned income, even if you want to fund it yourself. The IRS ties the contribution limit directly to the child's own earnings. If your 12-year-old earned $2,000 from a summer job, you could contribute up to $2,000 to their Roth IRA that year. If they earned nothing, the contribution limit is zero.

The account itself is held in the child's name, but as the parent you typically control it until they reach the age of majority (usually 18 or 21, depending on your state). This is called a custodial Roth IRA, and most major brokerages offer them.

Key Takeaways

• Your child must have earned income from work to open a Roth IRA; the annual contribution limit cannot exceed what they actually earned that year.
• You open and manage a custodial Roth IRA as the parent or guardian, but the account belongs to your child and follows their Social Security number.
• Money in a child's Roth IRA grows tax-free and can be withdrawn tax-free in retirement, giving decades of compound growth before they reach age 59½.
• Your child can withdraw their own contributions (not earnings) at any time without penalty, but earnings withdrawn before age 59½ are subject to tax and a 10% penalty unless an exception applies.
• You will need to report your child's earned income on their tax return and may need to file a separate return for them depending on how much they earned.

What counts as earned income for a child

Earned income is money your child received in exchange for work. W-2 wages from a part-time job, self-employment income from a lawn-mowing business or babysitting, modeling fees, and acting income all count. Prizes and awards for work also count if they are tied to the job itself.

These do not count: allowance (even if tied to chores), gifts from relatives, investment income like dividends or capital gains, scholarships, or money from a trust. If your child receives a 1099 form from a client or business, that is self-employment income and it counts.

The key test is whether your child performed work and received payment for it. If you own a business, you can legitimately pay your child for work they actually do—filing, data entry, social media, or other real tasks—and that income counts toward a Roth IRA contribution. Keep records of the work performed and the dates, in case the IRS asks.

How to open a custodial Roth IRA

You will need to choose a brokerage that offers custodial Roth IRAs. Fidelity, Vanguard, Charles Schwab, and E*TRADE all offer them. Go to the brokerage's website and look for "custodial Roth IRA" or "minor Roth IRA" in their account types.

When you open the account, you will provide your child's Social Security number and your own information as the custodian. The brokerage will ask for your child's date of birth and will verify your relationship. Some brokerages require you to open your own account first or to verify your identity through a third-party service.

After the account is open, you can fund it by transferring money from your bank account. You can contribute up to the amount of your child's earned income for that year. If your child earned $3,000 in 2024, you could contribute up to $3,000 to their 2024 Roth IRA by the tax filing deadline (usually April 15 of the following year).

Tax reporting and your child's tax return

If your child earned income, they may need to file a tax return. The threshold depends on their filing status and the type of income. For 2024, a dependent child with only W-2 wages generally needs to file if they earned more than $14,600. A dependent with self-employment income needs to file if they earned more than $1,150 from self-employment.

You will report the Roth IRA contribution on your child's tax return (Form 1040) if they file one. The contribution itself is not tax-deductible—it is made with after-tax money—but it reduces the amount of earned income that is subject to tax in some cases. A tax professional can help you determine whether your child needs to file and how to report the contribution correctly.

Keep copies of your child's W-2 forms or 1099 forms, along with records of any self-employment income. These documents support both the tax return and the Roth IRA contribution amount.

Withdrawal rules and the advantage of starting young

Your child can withdraw their own contributions (the money you put in) at any time without penalty or tax. If you contributed $2,000 to their Roth IRA, they can withdraw that $2,000 whenever they want. This makes a Roth IRA more flexible than a traditional IRA for young savers.

Earnings (the investment growth inside the account) are different. If your child withdraws earnings before age 59½, they owe income tax on those earnings plus a 10% penalty—unless an exception applies. Exceptions include withdrawals for a first home purchase (up to $10,000 lifetime) or for certain education expenses.

The real power of a child's Roth IRA is time. A 12-year-old with a $2,000 contribution has 47 years until age 59½ for that money to grow tax-free. A 16-year-old with $3,000 per year for four years of part-time work has decades of compound growth ahead. Even modest contributions in childhood can grow into substantial retirement savings.

Custodial account rules and when control transfers

As the custodian, you control the account and make all investment decisions until your child reaches the age of majority. You choose what investments to buy—stocks, mutual funds, exchange-traded funds—and you can move money between investments within the account. Your child cannot make trades or withdraw money without your permission.

When your child reaches the age of majority (18 in most states, 21 in a few), the account automatically transfers to their control. Some brokerages send a notice before this happens. At that point, your child owns the account outright and can make their own decisions about contributions, investments, and withdrawals.

The account remains a Roth IRA with all its tax advantages. Your child can continue to contribute to it as long as they have earned income, and the money can stay in the account until they need it in retirement.

Comparing a Roth IRA to other savings options for children

A Roth IRA is not the only way to save for a child. A 529 education savings plan is designed for college expenses and offers tax-free growth for tuition and related costs. A Uniform Transfers to Minors Act (UTMA) account or Uniform Gifts to Minors Act (UGMA) account is a general investment account with no contribution limits, but the money transfers to your child at age 18 or 21 and they can spend it on anything.

A Roth IRA is best if your child has earned income and you want to encourage long-term retirement saving. The tax-free growth and the ability to withdraw contributions make it flexible. A 529 is better if the goal is specifically college. A custodial brokerage account is better if you want to save money with no restrictions on how your child uses it later.

Many families use more than one: a Roth IRA for retirement savings tied to your child's job, a 529 for college, and perhaps a custodial account for other goals. The Roth IRA is often overlooked because people assume children cannot have retirement accounts, but it is a powerful tool for families with working kids.

Frequently Asked Questions

What if my child's job is seasonal or they only work one year?

You can contribute to a Roth IRA only in years when your child has earned income. If they worked and earned $1,500 in 2024 but do not work in 2025, you can contribute up to $1,500 for 2024 (by April 15, 2025) but nothing for 2025. The account stays open and the money continues to grow tax-free even if no new contributions are made.

Can I contribute more than my child earned if I want to fund it myself?

No. The IRS limits contributions to the amount of earned income your child actually received that year. If your child earned $1,000, the maximum contribution is $1,000, even if you want to contribute $5,000. This rule prevents people from using Roth IRAs as a general tax shelter for children.

What happens to the Roth IRA when my child turns 18?

The account transfers to your child's full control. They become the account owner and can make their own investment decisions, add contributions if they have earned income, and withdraw money. You no longer have authority over the account unless they give you power of attorney.

Can my child have both a Roth IRA and a 401(k) from their job?

Yes. If your child works at a job that offers a 401(k) and also has self-employment income, they can contribute to both. The contribution limits are separate: the 401(k) limit applies to that account, and the Roth IRA limit applies to the Roth. A tax professional can help coordinate contributions to avoid exceeding annual limits.

What if I contributed too much to my child's Roth IRA by mistake?

Contact the brokerage and ask them to remove the excess contribution. The brokerage can return the excess money to you, and you should report this on your child's tax return. If the excess is not removed by the tax filing deadline, you may owe a 6% excise tax on the excess amount for each year it remains in the account.