Yes, you can open a Roth IRA for your child, but your child must have earned income

A child can own a Roth IRA at any age, but only if they earned money through work during that year. The IRS does not allow a Roth IRA contribution based on parental income, gifts, or allowance. Your child needs actual earned income — money from a job, self-employment, modeling, acting, or other work they performed themselves.

The contribution limit for your child's Roth IRA is the smaller of two numbers: either the amount they earned that year, or the annual contribution limit set by the IRS. For 2024, the annual limit is $7,000 for most people, but if your child earned only $3,000, you can contribute only $3,000 to their Roth IRA.

You, as the parent, can open and manage the account on your child's behalf through a custodial Roth IRA. You control the account until your child reaches the age of majority (18 or 21, depending on your state), at which point they take over. The money grows tax-free, and your child can withdraw their contributions (not the earnings) at any time without penalty.

Key Takeaways

  • Your child must have earned income from work in order to contribute to a Roth IRA; parental gifts or allowance do not count.
  • The annual contribution is limited to the smaller of their earned income or the IRS annual limit ($7,000 in 2024).
  • You open a custodial Roth IRA through a brokerage firm, and you manage it until your child reaches the age of majority in your state.
  • Money in a Roth IRA grows tax-free, and your child can withdraw their contributions without penalty at any time.
  • Your child's part-time job, self-employment income, or modeling work all count as earned income for Roth IRA purposes.

What counts as earned income for a child's Roth IRA

Earned income is money your child receives in exchange for work they performed. A W-2 job at a retail store, restaurant, or office counts. Self-employment income also counts — if your child mows lawns, babysits, or runs a small online business, that income qualifies. Modeling fees, acting income, and athletic scholarships that include a work component all count as well.

Money that does not count includes birthday gifts, allowance, investment returns, inheritance, or parental loans. If you pay your child to do chores around the house, that can count as earned income, but you must document it carefully: keep records of what work was done, when, and how much was paid. The IRS may question household payments if they seem inflated or inconsistent with what similar work would cost outside the family.

If your child has a job with a W-2, the earned income is straightforward — it is the gross wages shown on the W-2 form. If your child is self-employed, earned income is the net profit from that business (total income minus business expenses), reported on Schedule C or Schedule C-EZ.

How to open a custodial Roth IRA for your child

You open a custodial Roth IRA through a brokerage firm or financial institution. Major brokerages that offer custodial Roth IRAs include Fidelity, Vanguard, Charles Schwab, and E*TRADE, though many smaller firms offer them as well. You will need to provide your child's Social Security number, date of birth, and your own information as the custodian.

The process process is similar to opening a regular Roth IRA, except you designate yourself as the custodian. You will choose how the money is invested — typically in mutual funds, index funds, or individual stocks, depending on what the brokerage offers. Many custodial accounts have limited investment options compared to adult accounts, so check what is available before you choose a firm.

Once the account is open, you can contribute money on your child's behalf. You can contribute up to the limit of their earned income for that year. You do not have to contribute the full amount — you can contribute less if you prefer. The contribution must be made by the tax filing important date for that year (usually April 15 of the following year).

Tax treatment and withdrawal rules for custodial Roth IRAs

A custodial Roth IRA follows the same tax rules as a regular Roth IRA. Contributions are made with after-tax money (money your child has already paid income tax on, or money they earned in a year when they had no tax liability). The money grows tax-free inside the account, and withdrawals of contributions are tax-free and penalty-free at any time.

Earnings (the investment gains on the money) can be withdrawn tax-free and penalty-free only after your child reaches age 59½ and has held the account for at least five years. If your child withdraws earnings before age 59½, they owe income tax on those earnings plus a 10 percent early withdrawal penalty — with some exceptions for disability, death, or first-time home purchase.

Your child can always withdraw the contributions themselves without tax or penalty, regardless of age. This is one of the key advantages of a Roth IRA for young people: the money is accessible if they need it, but the earnings stay protected and grow tax-free for decades.

When your child takes control of the account

The age at which your child takes control of the custodial Roth IRA depends on your state law. In most states, this happens at age 18 (the age of majority). In some states, it is age 21. A few states use age 19 or 25 for certain accounts. Check your state's laws or ask the brokerage what age applies in your situation.

Once your child reaches that age, the account automatically converts to a regular Roth IRA in their name. You no longer have control over investment decisions or withdrawals. Your child can then manage the account however they wish, including changing the investments, taking withdrawals, or leaving it untouched to grow.

Before the transfer happens, you may want to discuss the account with your child and explain how it works. If your child does not understand that the money is meant for long-term retirement savings, they may withdraw it for other purposes once they have control.

Comparing custodial Roth IRAs to other savings options for children

A custodial Roth IRA is one way to save for your child's future, but it is not the only option. A 529 college savings plan is designed specifically for education expenses and offers tax-free growth for tuition, fees, and room and board. A Uniform Transfers to Minors Act (UTMA) account or Uniform Gifts to Minors Act (UGMA) account allows you to save money for your child with more flexibility on how it is used, but the money transfers to your child at age 18 or 21 and they can spend it on anything.

A regular savings account or money market account offers no tax advantages but gives you complete control and flexibility. A custodial brokerage account (not an IRA) lets your child own stocks or mutual funds and transfers to them at age 18 or 21, but does not offer the tax-free growth of a Roth IRA.

The main advantage of a custodial Roth IRA is the tax-free growth over decades, combined with the ability to withdraw contributions if needed. The main disadvantage is that your child must have earned income to contribute, and the account is meant for retirement, not other goals. If your child does not have earned income, or if you want to save for education or other near-term goals, a different account type may be better.

Frequently Asked Questions

Can I contribute to my child's Roth IRA if they did not earn income?

No. The IRS requires that contributions to a Roth IRA be based on earned income. If your child had no earned income that year, you cannot contribute to their Roth IRA, even if you want to gift them the money. Your child must have worked and earned money themselves.

What if my child earned $2,000 but I want to contribute $7,000?

You can contribute only up to the amount your child earned. If they earned $2,000, the maximum contribution is $2,000. The IRS limit of $7,000 applies only if your child earned at least that much. You cannot exceed their earned income for the year.

Can my child withdraw the money before age 59½?

Your child can withdraw their contributions at any time without tax or penalty. They can withdraw the earnings only before age 59½ if they meet certain exceptions, such as disability or a first-time home purchase (up to $10,000 lifetime). Otherwise, withdrawals of earnings before age 59½ are taxed and penalized.

Do I need to file taxes for my child to contribute to a Roth IRA?

Not necessarily. If your child's earned income is below the standard deduction for that year, they may not owe federal income tax and may not need to file a return. However, if they earned money, it is often a good idea to file a return anyway, especially if taxes were withheld from their paycheck. Check the IRS rules for your child's age and income level.

What happens to the account when my child turns 18?

The custodial Roth IRA converts to a regular Roth IRA in your child's name, and they gain full control. You can no longer make decisions about the account. Your child can then manage it themselves, change the investments, or take withdrawals as they wish.