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

A Roth IRA for a minor is a real account that works the same way as an adult's — money grows tax-free and withdrawals in retirement are tax-free. The catch is strict: your child must have actual earned income from a job or self-employment in order to contribute. You cannot fund it with allowance, gifts, or investment returns. The child's name goes on the account, but you typically manage it as custodian until they reach the age of majority (usually 18 or 21, depending on your state and the financial institution).

The contribution limit for 2024 is the lesser of $7,000 or 100% of your child's earned income that year. So if your 14-year-old earned $2,500 from a summer job, the maximum contribution is $2,500, not $7,000. This rule applies whether the money comes from your pocket or your child's — what matters is the income exists on a tax return or documented record.

Key Takeaways

  • Your child must have earned income from work — allowance, gifts, or investment gains do not count toward a Roth IRA contribution.
  • You open the account in your child's name with yourself listed as custodian, and you control the account until your child reaches the age of majority.
  • The contribution limit is the smaller of $7,000 or 100% of your child's earned income in that tax year.
  • Common sources of earned income for minors include W-2 jobs, self-employment (babysitting, lawn care, tutoring), and modeling or acting work reported on a 1099.
  • Your child can withdraw contributions (but not earnings) at any time without penalty, though earnings withdrawn before age 59½ usually face a 10% penalty plus income tax.

What counts as earned income for a minor

Earned income means money your child received for work performed. A W-2 job — part-time retail, food service, lifeguard work — counts. Self-employment also counts: babysitting, lawn mowing, tutoring, pet-sitting, or selling items online if your child is the one doing the work and reporting it. Modeling, acting, or other performance work reported on a 1099 counts. Rental income from property your child owns does not count. Interest or dividends from investments do not count. An allowance, even if tied to chores, does not count because it is a gift, not payment for work.

The income must be documented. For W-2 work, the employer's record is proof. For self-employment, you should keep records: invoices, receipts, a simple log of hours and rates. If the IRS ever asks, you need to show the work was real. This is especially important if your child is self-employed and you are also the one paying them — the IRS scrutinizes family businesses, so document the work and the rate as if you were paying an unrelated person.

How to open a custodial Roth IRA

You open the account at a bank, brokerage, or investment firm that offers custodial Roth IRAs. Common providers include Fidelity, Vanguard, Charles Schwab, and many local banks. You will need your child's Social Security number, your own identification, and proof of the earned income (usually a recent pay stub or tax return). The account is titled something like "John Smith, Custodian FBO [For Benefit Of] Jane Smith" — your child's name is on it, but you are the legal custodian.

You control all decisions: where the money is invested, when contributions are made, and when withdrawals happen. Your child cannot access the account or make changes without your permission. Some providers allow you to set it up online in 15 minutes; others require a phone call or in-person visit. There is no fee to open the account, though some providers charge annual maintenance fees (often waived if you maintain a minimum balance or set up automatic deposits).

Contribution deadlines and tax reporting

You can contribute to your child's Roth IRA anytime during the tax year or up until the tax filing deadline the following year — usually April 15. So contributions for 2024 can be made through April 15, 2025. You do not have to contribute the full amount at once; you can add money throughout the year as your child earns it.

You do not file a separate tax form to open the account or report the contribution to the IRS. The Roth IRA itself is not reported on your child's tax return. However, if your child has self-employment income, they may need to file a tax return to report that income and pay self-employment tax, even if the income is small. A tax professional or the IRS website can tell you whether your child's specific income requires a return. The financial institution holding the Roth IRA will send you an annual statement showing contributions and growth.

What happens when your child turns 18 or 21

At the age of majority in your state (usually 18, sometimes 21), your child legally owns the account and can take control. You are no longer the custodian. Most financial institutions will ask your child to confirm their identity and may require a new signature card or online authorization. After that, your child can make deposits, withdrawals, and investment decisions without your permission.

The account itself does not change — it remains a Roth IRA with the same tax rules. Your child can keep contributing as long as they have earned income. If they do not have earned income in a given year, they cannot contribute that year, even if the account already has money in it. The money already in the account continues to grow tax-free regardless.

Withdrawal rules and tax consequences

Your child can withdraw contributions at any time without penalty or tax. If your child contributed $2,500 over three years and wants to withdraw $1,500, that $1,500 comes out tax-free and penalty-free. Earnings (the growth on the money) are different: withdrawing earnings before age 59½ usually triggers a 10% penalty plus income tax on the earnings amount.

There are narrow exceptions to the 10% penalty — for instance, if your child uses up to $35,000 of earnings for a first home down payment, or if they withdraw for certain medical or education expenses. But these exceptions are specific and have their own rules. For most situations, the practical advice is: treat the Roth IRA as long-term money your child will not touch until retirement. If you think your child might need the money before age 59½, a regular savings account or 529 college savings plan may be a better fit.

Why parents open Roth IRAs for children

The main reason is time. A 14-year-old who contributes $2,000 a year for four years, then stops, will have roughly $8,000 in the account by age 18. If that money sits untouched until age 65, it grows to over $200,000 (assuming 7% annual returns) — all tax-free. An adult who starts at 25 with the same $8,000 will have far less at retirement because there are fewer years of growth. Starting early is the single biggest advantage of a Roth IRA.

A secondary reason is teaching. Managing an account, watching it grow, and understanding the tax benefits teaches your child about investing and long-term thinking. Some parents use it as a tool to encourage their child to work and save.

Frequently Asked Questions

Can I contribute money I give my child as a gift?

No. The contribution must come from your child's earned income. However, you can give your child money as a gift, and they can use that gift to fund the Roth IRA — as long as the contribution does not exceed their earned income for the year. If your child earned $3,000 and you gave them $5,000, they can contribute up to $3,000 to the Roth IRA.

What if my child has no income one year?

Your child cannot contribute to the Roth IRA that year. The account sits idle, but the money already in it continues to grow tax-free. Your child can resume contributions in a future year when they have earned income again.

Can my child have both a Roth IRA and a 529 college savings plan?

Yes. They serve different purposes. A 529 is for education expenses and has no age limit on contributions. A Roth IRA is for retirement and has annual contribution limits tied to earned income. Your child can use both.

Do I pay taxes on the growth in my child's Roth IRA?

No. That is the main benefit of a Roth IRA. All growth is tax-free, and your child pays no tax on withdrawals in retirement. You do not report the account on your own tax return.

What if my child wants to withdraw money before age 59½?

Contributions can be withdrawn anytime tax-free and penalty-free. Earnings withdrawn before age 59½ typically face a 10% penalty plus income tax, unless a narrow exception applies (first home, certain education or medical costs). Check with a tax professional about your child's specific situation.