Can I Open a Roth IRA for My Child? What Parents Should Know
A custodial Roth IRA lets parents help a child with earned income start building long-term wealth. By starting early, children gain decades of potential tax-free growth while learning the value of saving and investing.
Takeaways
- A custodial Roth IRA can help children build long-term wealth while learning the value of saving and investing.
- A child must have earned income to qualify for a custodial Roth IRA.
- Parents or grandparents may fund the account as long as contributions do not exceed the child’s earned income.
- Investment growth and qualified withdrawals may be tax-free.
- Ownership transfers to the child when they reach the age of majority.
Why Consider a Custodial Roth IRA for Your Child?
A custodial Roth IRA gives your child something most investors never get enough of: Time. Starting early can help teach the value of saving and investing while giving their money decades to potentially grow before retirement.
Your kid gets a summer job. Or maybe they babysit, mow lawns, or pick up shifts on the weekends.
If your child has earned income, even a small amount, you may have an opportunity to open a custodial Roth IRA and start building them a tax-free retirement account right now. And the best part? They can keep every dollar they earn.
Here’s what you should know.
What Is a Custodial Roth IRA for Kids?
A custodial Roth IRA for kids is a retirement savings account opened by a parent or guardian on behalf of a minor.
It works like a standard Roth IRA – contributions are made with after-tax dollars, and the money may grow tax-free.
The account provides all the benefits of a regular Roth IRA, but requires an adult to serve as custodian until the child reaches the age of majority.
Who Controls the Account?
You do, until your child becomes a legal adult.
As the custodian, you make all decisions about contributions and investments. When the minor reaches the required age, typically 18 in most states, 21 in others, the assets must be transferred to a new account in their name. [1]
At that point, the account is entirely theirs.
They gain full legal control over the funds, with no restrictions beyond standard Roth IRA rules.
What Counts as Earned Income for a Custodial Roth IRA?
Earned income is any money your child receives from work. Allowances and cash gifts do NOT count as earned income, even if a parent pays them.
Your child may qualify if they earn money from any of the following:
- A summer job at a local business (W-2 income)
- Babysitting, dog walking, or lawn care (self-employment income)
- Any other work your child is legitimately paid to do
Important note on informal work: Babysitting, lawn mowing, and similar jobs are typically treated as self-employment income by the IRS, not W-2 income.
In some cases, self-employment taxes (Social Security and Medicare) may apply to this type of income.
If your child earns more than $400 in self-employment income in a year, they may be required to report it. [2]
It is advisable to consult a tax professional to understand the full tax picture.
Can a Parent Fund a Child’s Custodial Roth IRA?
Yes, and this is the part of the strategy we feel is important to understand. Earned income unlocks the account. Who makes the deposit is up to your family.
A parent, grandparent, or other adult may deposit into a custodial Roth IRA, as long as the total contributed does not exceed the child’s earned income for that year. [1]
Your child earns $3,000 working a summer job. They keep every dollar.
You contribute $3,000 of your own money into their Roth IRA.
The IRS rule is satisfied because the contribution matches the child’s earned income, not because the child made the deposit themselves.
If your child earns $0, the contribution limit is $0. There is no workaround for this IRS rule.
For 2026, the contribution limit is $7,500 or 100% of the child’s earned income, whichever is lower. [3]
Does the Kiddie Tax Apply to a Custodial Roth IRA?
No. The kiddie tax does not apply to investment earnings inside a Roth IRA.
The kiddie tax is an IRS rule that taxes a child’s unearned income – things like dividends, interest, and capital gains from regular investment or custodial accounts – at the parents’ higher tax rate rather than the child’s lower rate.
For 2026, the first $1,350 of a child’s unearned income is tax-free, the next $1,350 is taxed at the child’s rate, and anything above $2,700 is taxed at the parents’ marginal rate. [4]
Here’s why this matters for a custodial Roth IRA: Earnings inside the Roth IRA do not count as annual taxable income to the child.
The money grows tax-deferred inside the account. Qualified withdrawals in retirement may be taken tax-free.
A custodial Roth IRA sidesteps the kiddie tax entirely. That is one of its most powerful advantages over a standard custodial investment account. [4]
As always, consult a tax professional for guidance specific to your family’s situation.
Why Starting a Custodial Roth IRA for Kids Early Can Matter
Time can be the most powerful force in retirement savings. A custodial Roth IRA started in your child’s teen years could have 45 or more years to potentially grow before they retire.
Here’s a hypothetical example.
If a 17-year-old has $3,000 contributed to a Roth IRA today, and that account earns an average of 7% per year, it could potentially grow to roughly $80,000 by age 65 – with no additional contributions ever made.
This is a hypothetical illustration only, and it assumes a consistent 7% annual return with no withdrawals.
The real value goes beyond the dollars.
When your child sees money growing for their future, it can teach them something no classroom can – that saving early matters.
It helps build financial habits that carry into adulthood and gives them a foundation many people don’t have.
Fund Your Own Retirement First
Before you contribute to your child’s Roth IRA, make sure your own retirement is on track.
This is not about choosing between your child and yourself.
It’s more about understanding that your financial security is likely the foundation everything else is built on.
If you are not yet maximizing your 401(k), or at minimum capturing your full employer match, we recommend you start there first.
Once your own retirement is funded and you have room in your budget, a custodial Roth IRA for your child can be a good next step.
You cannot give your kids a strong financial future if you run out of money in retirement. Taking care of yourself first can take care of them, too.
Have questions or concerns about your 401(k)? Book a complimentary 15-minute 401(k) Strategy Session with one of our advisors.
Sources
[1] Fidelity Investments. Roth IRA for Kids – Plan Benefits, Eligibility, and Investment Options. April 2026. https://www.fidelity.com/retirement-ira/roth-ira-kids
[2] Fidelity Investments. Custodial Roth IRA: Your Guide to Roth IRAs for Kids. https://www.fidelity.com/learning-center/personal-finance/retirement/turbocharge-childs-retirement
[3] Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026; IRA Limit Increases to $7,500. IRS Notice 2025-67. November 13, 2025. https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500
[4] Fidelity Investments. Understand the Kiddie Tax. April 2026. https://www.fidelity.com/learning-center/personal-finance/kiddie-tax
