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Can I Open A Roth IRA For My Child

Can I Open A Roth IRA For My Child

Roth IRAs are a tremendously valuable savings vehicle for income earners.  After-tax money goes into the account, and it grows tax free and is distributed tax free at retirement.  Pretty good deal!  Starting one for your child early in their life can be a powerful savings strategy.  However, there are some rules to know to take advantage of these Custodial Roth IRAs (also known as Roth IRAs for Minors).

Who can contribute to a Custodial Roth IRA?

Only a child who has earned income may contribute to a Custodial Roth IRA.  This means that the income must be earned by the child in some way.  This can be from “informal” work like babysitting, or regular employment (1099 or W2).  In the case of informal work, it would be helpful if the child kept a ledger of their earnings. Also, don’t try to game the system here, the IRS does not allow contributions for income like allowance for chores around the house, or exorbitant pay for work, like paying them $500 for mowing the lawn. 

How much can you contribute to a Custodial Roth IRA?

Just like a regular Roth IRA, you may only contribute up to the income you earn, or the maximum allowed ($7000/year for earners under 50 in 2024).  So, if your child earns $500 babysitting over the summer, the most they can contribute to the Custodial Roth IRA is $500. 

Who owns a Custodial Roth IRA?

A minor generally may not own an account like a Roth IRA, so they are considered what is called the “Beneficial Owner” of the account.  It is the minor’s asset, controlled by the custodian (usually a parent or grandparent).  Once the minor reaches the age of majority (usually 18 or 21 depending on the state) control of the account transfers to the minor. 

What can you invest in a Custodial Roth IRA?

It can be invested in the same way any other IRA may be invested.  That means everything from individual stocks and bonds to mutual funds and ETFs.

Do kids really want to invest in Custodial Roth IRA?

Probably not, unless they’ve been taught how important saving is to their long-term financial wellbeing.  So, it may be a challenge to convince them to give up some or all of their hard-earned income from mowing lawns or babysitting the neighbor’s unruly kids.  However, as outlined below, the long-term benefits are manifold.

Advantages to starting a Custodial Roth IRA early

  • The child gets a jump start on investing.  Traditionally, the longer one invests, the higher the long-term returns will be.
  • The “5-year clock” starts.  Roth IRA contributions (not earnings) may be withdrawn without penalty or tax after the first Roth IRA contribution.  The earnings, however, cannot be withdrawn tax and penalty free until the account has “seasoned” or been open and funded for a full 5-year period.  Further, that 5-year clock is satisfied for any subsequent Roth IRAs opened.  We’re not saying you should withdraw funds prematurely from a Roth IRA, but it’s nice to have the option in your back pocket should you need it.
  • Helps teach children to understand the value of saving early in their life ,and allows parents to teach kids about investing.
  • No Required Minimum Distributions later in life (much later).


A Custodial Roth IRA can be a wonderful way to get a minor child started on the right path financially, if you follow the rules.  Even small amounts invested early in life can produce tremendous returns over a long period of time.

Source: https://www.irs.gov/publications/p590a