Yes, you can open a custodial Roth IRA for your child at any age, as long as the child has earned income from actual work. A parent or guardian opens and manages the account, but the child is the legal owner. For 2026, the contribution ceiling is $7,500 or the child’s total earnings for the year, whichever is smaller.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 The advantage a child has that no adult can match is time: contributions made in the teenage years can compound tax-free for five decades or more.
The Earned Income Gate
Everything hinges on earned income. Federal tax law defines it as compensation for work performed, including W-2 wages and net self-employment earnings from things like babysitting, lawn mowing, tutoring, or acting.2Office of the Law Revision Counsel. 26 USC 219 – Retirement Savings There is no minimum age. A six-year-old with modeling income qualifies, and so does a sixteen-year-old at a restaurant.
What does not count: allowance, money for household chores, gifts, and investment income like interest or dividends. Those are not compensation for services, so they cannot support an IRA contribution. If the IRS decides the underlying income wasn’t legitimate, the contribution can be disallowed and penalties can follow.
How Much You Can Contribute
The 2026 annual limit is $7,500, but your child’s contributions cannot exceed what they actually earned that year.3Internal Revenue Service. Retirement Topics – IRA Contribution Limits A teenager who earned $4,000 over the summer can put in $4,000 at most, no matter how much a parent wants to add.
The cash itself doesn’t have to come from the child’s bank account. A parent, grandparent, or anyone else can gift the funds used for the contribution, provided the child earned at least that amount during the year.3Internal Revenue Service. Retirement Topics – IRA Contribution Limits That lets the child keep spending their paycheck while someone else funds the retirement account up to the earned-income cap.
Contributions for a tax year can be made from January 1 of that year through the April 15 filing deadline the following year. So a 2026 contribution can go in as late as April 15, 2027.
Overcontribute, and the IRS imposes a 6% excise tax on the excess for every year it sits in the account.4Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts and Annuities Pulling the excess plus any earnings on it before the filing deadline avoids the penalty.
Why Roth Beats Traditional for a Child
Both custodial Roth and custodial Traditional IRAs exist, but for a working child the Roth is almost always the right pick. Roth contributions go in with after-tax dollars, and qualified withdrawals decades later come out completely tax-free.5Internal Revenue Service. Roth IRAs A Traditional IRA offers an upfront deduction, and that deduction is worth nothing to a child who owes no federal income tax to begin with.
Most working children earn well under the 2026 standard deduction of $16,100, which means their federal income tax bill on the earnings is already zero.6Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Money enters the Roth untaxed and leaves untaxed, which is unusual in the tax code.
Paying a Child Through a Family Business
One common way to create eligible earnings is hiring your child in a family business. When a child under 18 works for a parent’s sole proprietorship, the wages are exempt from Social Security and Medicare taxes.7Internal Revenue Service. Family Employees That’s a 15.3% savings versus hiring outside the family.8Office of the Law Revision Counsel. 26 USC 3121 – Definitions The exemption also covers a partnership in which every partner is a parent of the child. It does not apply if the business is a corporation or an S-corp.
This is also the area the IRS scrutinizes most closely. The work has to be real, age-appropriate, and paid at a rate you’d give a stranger for the same task. A ten-year-old filing invoices at a reasonable hourly rate is defensible. Paying a toddler $50 an hour to “supervise” is not. Keep written job descriptions, log the hours, and pay by check or direct deposit rather than cash.
Whether Your Child Has to File a Tax Return
Opening the IRA doesn’t itself create a filing obligation, but the underlying income might. W-2 wages below the 2026 standard deduction of $16,100 generally don’t require a return.6Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
Self-employment income has a much lower trigger. Once net self-employment earnings hit $400 in a year, the child must file a federal return and pay self-employment tax for Social Security and Medicare, even if no income tax is due.9Social Security Administration. If You Are Self-Employed That tax runs roughly 15.3% of net earnings, which catches many families off guard when a child has only made a few hundred dollars babysitting.
How to Open the Account
Most major brokerages offer a custodial IRA application online, sometimes labeled “Custodial IRA,” “Minor IRA,” or “IRA for Kids.” You’ll need the child’s full legal name matching their Social Security card, date of birth, and Social Security number. As custodian, you provide your own identification and are designated to manage trades and account decisions.
Once the account is approved, link a bank account and transfer the contribution. You can make one lump sum or spread deposits across the year. The assets belong to the child from day one; the custodian’s role is temporary management, not ownership.
Records That Hold Up if Questioned
W-2 income is easy to document because the employer reports it. Self-employment income is where families tend to fall short. The IRS expects records showing what work was done, when, for whom, and how much was paid.10Internal Revenue Service. IRS Audits – Records We Might Request
Keep a log with the date of each job, the client’s name, a brief description of the service, and the amount received. Text confirmations or written agreements add another layer of proof. If a neighbor pays your child $40 to mow the lawn, a Venmo or Zelle receipt noting the payer and the service is solid documentation. Cash without any paper trail is the hardest to defend.
Getting to the Money Before Retirement
Roth flexibility is what makes locking money away for decades tolerable. Contributions (not earnings) can come out any time, at any age, with no tax and no penalty.11Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements IRS ordering rules treat every dollar leaving a Roth as a return of contributions first. If your child put in $15,000 over several years, they can withdraw up to $15,000 for any reason without owing anything.
Earnings withdrawn before age 59½ generally face a 10% penalty plus income tax, with a few exceptions relevant to young adults:
- Up to $10,000 in earnings for a first-time home purchase, penalty-free.12Internal Revenue Service. Topic No. 557 – Additional Tax on Early Distributions from Traditional and Roth IRAs
- Qualified higher education expenses like tuition and fees at eligible institutions.
- Health insurance premiums paid after losing a job.
Even under an exception, earnings withdrawn before the account has met the five-year holding period and the owner has reached 59½ are still subject to income tax.
When Custodianship Ends
The custodial arrangement is temporary. Once your child reaches the age of majority in your state, the account converts to a standard IRA in their name with full control. That age varies by state, typically between 18 and 21, though some states allow custodianships to extend to 25. The brokerage will notify both parties as the transfer date nears.
From that point, the young adult makes every investment and withdrawal decision. There is no way to legally block the handover, which is worth weighing before contributing large sums. The Roth structure itself provides some brake: only contributions come out penalty-free, and tapping earnings early triggers taxes and penalties.
Effect on Financial Aid
A custodial Roth IRA sits in a favorable spot in the aid formula. Retirement accounts are not reported as assets on the FAFSA, so the balance won’t reduce your child’s eligibility.13Federal Student Aid. Filling Out the FAFSA
Withdrawals are the trap. A distribution taken during college counts as student income on a later FAFSA, which can meaningfully cut aid. The workable strategy is to leave the Roth alone during the college years and look to other sources for tuition first.