Opening a Roth IRA for Your Child: A Step-by-Step Guide

How to open a Roth IRA for a child

A child needs earned income to open a Roth IRA, and you'll need to open it at a brokerage or bank that allows custodial accounts. The child's name and Social Security number go on the account, but you control it as the custodian until they reach the age of majority (usually 18 or 21, depending on your state). You'll complete an account application, provide tax identification, and fund it with money the child actually earned—not an allowance or gift.

The process takes 15 to 30 minutes online or in person. Most major brokerages (Fidelity, Vanguard, Charles Schwab, E*TRADE) offer custodial Roth IRAs with no minimum balance to start. Some require a parent to be a co-owner of the account or to verify the child's income on a tax return before allowing contributions.

Key Takeaways

• Your child must have earned income from a job, self-employment, or modeling to contribute to a Roth IRA—gifts and allowances do not count.
• You open a custodial Roth IRA in the child's name at a brokerage, and you remain the custodian with full control until they reach adulthood.
• The contribution limit for 2024 is the lesser of the child's total earned income or $7,000, and contributions must be made by the tax filing deadline (usually April 15 of the following year).
• Money in a custodial Roth IRA grows tax-free and can be withdrawn tax-free in retirement, giving decades of compound growth before the child ever needs it.
• Some brokerages require proof of earned income, such as a pay stub, 1099 form, or tax return showing self-employment income.

Earned income requirements for a child's Roth IRA

The IRS requires that any contribution to a child's Roth IRA cannot exceed the child's total earned income for that year. Earned income means money the child received for work—W-2 wages from a job, self-employment income from a business or side work, or modeling fees. It does not include allowance, gifts, investment returns, or money from relatives.

If your 12-year-old earns $2,000 babysitting, they can contribute up to $2,000 to a Roth IRA that year. If they earn $500, the limit is $500. If they earn nothing, they cannot contribute. This rule exists because the Roth IRA is designed to reward people for working and saving from their own income.

Self-employment income counts, so a child who mows lawns, sells items online, or does freelance work can open a Roth IRA. You may need to file a Schedule C (self-employment tax form) or provide a 1099 form to the brokerage as proof. A child employed by a parent's business can also contribute, though the IRS scrutinizes these arrangements—the work must be real, the pay must be reasonable for the task, and you should document it.

Choosing a brokerage and opening the account

Most large brokerages offer custodial Roth IRAs with no account fees or minimum balance. Fidelity, Vanguard, Charles Schwab, and E*TRADE all have straightforward online applications. Smaller brokerages and some banks offer them too, but check their websites first—not every institution does.

Start by visiting the brokerage's website and looking for "custodial Roth IRA" or "minor Roth IRA." You'll fill out an application that asks for the child's name, date of birth, and Social Security number, plus your name and relationship. Have the child's Social Security card or tax return handy. Some brokerages ask you to upload a pay stub or 1099 showing the child's income; others skip this step initially and ask for it only if you contribute more than a certain amount.

The account opens in one to three business days. You'll receive login credentials and can then fund the account by transferring money from your bank account. The money sits in the account as cash until you or the child (once they're old enough) decide how to invest it.

Contribution limits and deadlines

For 2024, the contribution limit is $7,000 or the child's earned income for the year, whichever is less. This limit applies to all of the child's IRA accounts combined—if they have both a traditional IRA and a Roth IRA, contributions to both count toward the same $7,000 cap. The limit changes each year; the IRS announces it in October for the following year.

Contributions for a given tax year can be made until the tax filing deadline, which is usually April 15 of the following year. If your child earned $3,000 in 2024, you can contribute to their 2024 Roth IRA anytime between January 1, 2024, and April 15, 2025. After April 15, any contribution counts toward the next year's limit.

You do not have to contribute the full amount. If your child earned $5,000, you could contribute $2,000 one year and $3,000 the next. There is no penalty for contributing less than the limit, and there is no requirement to contribute at all—it is entirely optional.

What happens to the money as the child grows up

Money in the custodial Roth IRA grows tax-free. If you invest the $2,000 contribution in a stock index fund and it grows to $50,000 by the time your child is 30, all of that growth is tax-free. When your child reaches adulthood (the age varies by state, but is usually 18 or 21), the account automatically converts to a regular Roth IRA in their name, and you lose custodial control.

At that point, the child can leave the money untouched until retirement, withdraw it for a first home purchase (up to $10,000 lifetime), or use it for other purposes. Withdrawals of contributions (the money you put in) can always be taken out tax-free and penalty-free. Withdrawals of earnings (the growth) before age 59½ are subject to income tax and a 10% penalty, with some exceptions like first-time home purchase or education expenses.

The real power of a custodial Roth IRA is time. A $2,000 contribution at age 12 has 50+ years to grow before retirement. At a 7% average annual return, that $2,000 becomes roughly $75,000 by age 65. This is why even small contributions early in life can have an outsized impact.

Custodial control and your responsibilities

As the custodian, you make all decisions about the account until the child reaches adulthood. You decide what investments to buy, when to rebalance, and whether to contribute additional money. The child cannot access the account, make trades, or withdraw money without your permission.

You do not pay taxes on the account's growth—the child does. If the account earns interest or dividends, the child may owe tax on that income. If the child's total income (including IRA earnings) exceeds a certain threshold, they may need to file a tax return. The brokerage will send you a Form 1099 each year showing earnings, and you'll report this on the child's tax return if required.

Keep records of contributions and any income documentation (pay stubs, 1099s, tax returns) in case the IRS ever asks. The IRS can audit Roth IRA contributions to verify that earned income actually existed.

Common mistakes to avoid

The most common mistake is contributing money the child did not earn. If you give your child $2,000 as a gift and then contribute it to their Roth IRA, the IRS can disallow the contribution and assess penalties. The money must come from the child's actual work.

Another mistake is missing the April 15 deadline. Contributions made after the tax filing deadline count toward the next year's limit, which can reduce the amount you can contribute that year if the child's income is modest. Mark the deadline on your calendar.

A third mistake is not keeping records. If you cannot show the child's earned income when asked, the IRS may disallow the contribution. A pay stub, 1099, or a tax return showing self-employment income is your proof.

Finally, some parents assume the child cannot open an account because they are too young or do not have a credit history. Age and credit do not matter for a custodial Roth IRA—only earned income and a Social Security number do.

Frequently Asked Questions

Can my child open a Roth IRA if they work for me?

Yes, but the work must be real and the pay must be reasonable. If you pay your 10-year-old $50 an hour to file papers, the IRS may disallow it. If you pay them $15 an hour to do genuine work in your business, it is defensible. Document the work performed and keep records of hours and pay.

What if my child earns money but we do not want to contribute the full amount?

You do not have to contribute the full limit. If your child earned $4,000, you could contribute $1,000 and leave the rest. There is no penalty for contributing less, and you can always contribute more in future years if you choose to.

Can I withdraw money from my child's Roth IRA if I need it?

No. As custodian, you control the account, but the money belongs to the child. Withdrawing it for your own use is considered a prohibited transaction and can result in penalties and loss of the account's tax-favored status. The money must stay in the account for the child's benefit.

What happens to the account when my child turns 18?

The account converts to a regular Roth IRA in the child's name, and you lose custodial control. They can then manage it themselves, though many parents continue to advise their children on investment choices. The child can withdraw contributions anytime, but earnings are subject to tax and penalties if withdrawn before age 59½.

Do I need to file a tax return for my child if they have a Roth IRA?

Only if the child's total income exceeds the filing threshold for their age and filing status. A dependent child with only W-2 wages generally needs to file if they earned more than $14,600 in 2024 (this amount changes yearly). If the child has self-employment income, the threshold is lower. Check the IRS website or ask a tax professional about your child's specific situation.