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 the account must be funded with money they actually earned—not a gift from you. The IRS allows minors to contribute up to the amount of their earned income for that year, capped at the annual contribution limit (which varies by year). This means a 10-year-old with a paper route or a 16-year-old working at a grocery store can have a Roth IRA, but a child with no job cannot.

You, as the parent, will typically open and manage the account as a custodian until your child reaches the age of majority (18 or 21, depending on your state). The child's Social Security number is required to open the account. Most brokerages that offer Roth IRAs—Fidelity, Vanguard, Charles Schwab, and others—have straightforward processes for custodial accounts, though some require you to call rather than open online.

Key Takeaways

• Your child must have earned income from work to contribute to a Roth IRA; money you give them does not count unless they perform actual work for it.
• The contribution limit is the lesser of their earned income for the year or the annual Roth IRA limit set by the IRS.
• You open and manage a custodial Roth IRA as the parent until your child reaches the age of majority in your state.
• Money withdrawn before age 59½ is subject to taxes and penalties on earnings, though contributions can be withdrawn tax-free at any time.
• A Roth IRA started early gives decades of tax-free growth, making even small contributions from teenage years powerful over time.

What counts as earned income for a minor

Earned income means money your child receives for work they actually perform. This includes W-2 wages from a job, self-employment income from a business or side work, modeling income, or acting income. It does not include allowance, gifts, investment returns, or money from a trust.

If your child works for your business, the IRS allows you to pay them a reasonable wage for real work they do—filing, data entry, social media management, yard work, or other tasks. The payment must be documented (keep records of hours and duties), and the amount must be reasonable for the work performed. This is a legitimate way to fund a Roth IRA for a younger child who does not have outside employment.

Self-employment income counts too. If your child mows lawns, babysits, sells items online, or tutors other students, that income can fund a Roth contribution. You will need to track this income carefully, as your child may owe self-employment tax if earnings exceed a certain threshold.

How much can your child contribute each year

The contribution limit is the lesser of two amounts: either the child's total earned income for the year, or the annual Roth IRA contribution limit set by the IRS. For example, if your 14-year-old earned $2,000 from a summer job and the annual limit is $7,000, they can contribute up to $2,000. If they earned $10,000 and the limit is $7,000, they can contribute up to $7,000.

The annual limit changes periodically. You can find the current year's limit on the IRS website or by asking your brokerage. The limit applies to all IRAs combined—if your child has both a traditional IRA and a Roth IRA, contributions to both count toward the same annual limit.

You do not have to contribute the full amount. If your child earned $5,000, you could contribute $2,000 to their Roth IRA and let them use the remaining $3,000 for other expenses. However, the earlier and more consistently you fund the account, the more time the money has to grow tax-free.

Opening a custodial Roth IRA: the steps

Start by choosing a brokerage. Most major firms—Fidelity, Vanguard, Charles Schwab, E*TRADE, and others—offer custodial Roth IRAs. Compare their investment options (some offer only mutual funds, others offer individual stocks and ETFs), fees, and minimum balances. Many have no minimum balance requirement for custodial accounts.

Gather the required documents: your child's Social Security number, your Social Security number (as custodian), and proof of identity for both of you. Some brokerages accept online applications; others require you to call or mail in forms. Ask the brokerage whether they have a specific custodial account application or if you open a regular Roth IRA and designate it as custodial.

Once the account is open, you fund it with money from your own account. You are not transferring your child's earnings directly; you are contributing on their behalf using money you provide, but only up to the amount they earned. Keep documentation of your child's income (pay stubs, 1099 forms, or records of self-employment work) in case the IRS ever asks.

Tax filing and reporting requirements

If your child has earned income, they may need to file a tax return even if no taxes are owed. The threshold depends on their filing status and type of income. For 2024, a dependent with only W-2 wages generally does not file unless earnings exceed a certain amount; self-employed minors have a lower threshold. Check the IRS website or ask a tax professional whether your child needs to file.

When you contribute to your child's Roth IRA, you are not claiming a deduction on your own return. The contribution is made with after-tax money. Your child does not report the contribution as income either—it is simply a transfer of money into their retirement account.

If your child has self-employment income, they will owe self-employment tax (Social Security and Medicare tax) on that income, even if they do not owe income tax. This is calculated on Schedule SE and reported on their tax return. The Roth IRA contribution does not reduce self-employment tax.

How the account grows and what happens at withdrawal

Money in a Roth IRA grows tax-free. Any dividends, interest, or capital gains earned inside the account are not taxed each year, and you do not pay tax when you withdraw them in retirement. This is the core advantage of a Roth account, especially for a young person with decades of growth ahead.

Your child can withdraw their contributions (the money you put in) at any time, tax-free and penalty-free. If you contributed $2,000 when they were 14, they can withdraw that $2,000 at age 20 with no consequences. However, they cannot withdraw the earnings (the growth on that $2,000) before age 59½ without owing taxes and a 10% penalty on the earnings portion.

There are narrow exceptions to the early withdrawal penalty—first-time home purchase (up to $10,000 lifetime), disability, medical expenses, and a few others—but these apply only to earnings, not contributions. Contributions always come out first and penalty-free.

Why starting early matters for your child

A Roth IRA opened at age 14 has 45+ years to grow before your child reaches retirement age. Even small contributions compound dramatically over that time. A $2,000 annual contribution from age 14 to 22 (eight years of work), assuming 7% annual growth, could grow to over $100,000 by age 65, with no taxes owed on the growth.

Starting early also teaches your child about saving, investing, and the power of compound growth. It removes the pressure to catch up later with larger contributions. And it locks in tax-free growth at a time when they are likely to be in a low tax bracket anyway.

The account remains in your name as custodian until your child reaches the age of majority. At that point, the account transfers to their full control, and they can manage it, add to it, or withdraw from it as they choose. Some custodians handle this transfer automatically; others require paperwork.

Frequently Asked Questions

Can I contribute money I give my child as a gift to their Roth IRA?

No. The contribution must come from the child's earned income. However, you can give your child money as a gift, they can earn money through work, and then you can contribute that earned income amount to their Roth IRA on their behalf. The key is that the contribution limit is tied to what they actually earned, not what you gave them.

What if my child does not earn enough to max out the Roth IRA limit?

You can only contribute up to the amount they earned. If your 15-year-old earned $3,000 from a summer job, you can contribute up to $3,000 to their Roth IRA, even if the annual limit is higher. The unused portion of the limit does not carry forward to the next year.

Can I open a Roth IRA for my child without their knowledge?

Technically yes, but it is not advisable. The account is in your child's name and Social Security number. Once they reach the age of majority, they will have full control and may be surprised or confused to discover it. It is better to involve them in the process and use it as a teaching opportunity about saving and investing.

What happens to the Roth IRA if my child does not work the following year?

The account remains open and the money continues to grow tax-free. Your child simply cannot make a new contribution that year because they have no earned income. They can resume contributions in any future year when they have earned income again.

Is a custodial Roth IRA better than a 529 college savings plan?

They serve different purposes. A 529 is designed for education expenses and offers state tax breaks. A Roth IRA is for retirement and has no education-specific benefits, but money can be withdrawn penalty-free for a first-time home purchase or certain other events. If your child will work and you want to teach them about retirement savings, a Roth IRA is valuable. If education funding is the priority, a 529 may be more appropriate.