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

A child can own a Roth IRA if they earned money from work during that year. The child's name goes on the account, but a parent or guardian manages it until the child reaches the age of majority (usually 18 or 21, depending on your state). The account follows the same contribution limits and tax rules as an adult Roth IRA — the money grows tax-free and withdrawals in retirement are tax-free, provided the account has been open at least five years.

The earned income requirement is strict. The child cannot open a Roth IRA based on investment returns, allowance, or money from relatives. They must have worked: a W-2 job, self-employment income, modeling, acting, or other documented work. The contribution limit for 2024 is the lesser of $7,000 or 100% of the child's earned income that year. If your 12-year-old earned $3,000 from a summer job, the maximum contribution is $3,000, not $7,000.

Key Takeaways

  • A child must have earned income from work to open a Roth IRA; allowance and gifts do not count.
  • The annual contribution limit is the smaller of $7,000 or the child's total earned income for that year.
  • A parent or guardian controls the account until the child reaches the age of majority in your state.
  • Money in the account grows tax-free and can be withdrawn tax-free in retirement if the account has been open at least five years.
  • Most brokerages require the parent to open a custodial Roth IRA, not a standard Roth IRA.

What counts as earned income for a child

Earned income means money the child received in exchange for work. W-2 wages from an employer are the most common source. A teenager working at a retail store, restaurant, or summer camp has earned income. Self-employment income also counts: a child who mows lawns, babysits, or sells items online has earned income if they report it.

Modeling and acting income count. So does income from a family business, though the IRS scrutinizes this closely — the child must actually work, the pay must be reasonable for the work done, and the business must be legitimate. A parent cannot simply pay a child $5,000 to "work" in the family business if no real work occurred.

Money that does not count: allowance (even if tied to chores), gifts from relatives, investment returns, interest from a savings account, or money from a trust. A child who receives $2,000 in birthday money cannot use that to fund a Roth IRA. A child who earned $1,500 from a job and received $2,000 in gifts can contribute only up to $1,500.

How to open a custodial Roth IRA

You will open a custodial Roth IRA, not a standard Roth IRA. The custodian is the parent or guardian; the child is the beneficiary. Most major brokerages offer custodial Roth IRAs: Fidelity, Vanguard, Charles Schwab, and E*TRADE all have them. Some credit unions and banks offer them as well.

The process varies slightly by institution, but the basic steps are the same. You contact the brokerage and request a custodial Roth IRA application. You provide the child's Social Security number, date of birth, and address. You provide your own identification and proof that you are the custodian (usually a birth certificate or custody document). You choose how the money will be invested — typically in a target-date fund, index fund, or money market fund for a young child. You then fund the account by transferring money from your bank account.

The entire process usually takes one to two weeks. Some brokerages allow you to start online; others require a phone call or in-person visit. There is no fee to open the account, though some brokerages charge annual maintenance fees (usually $0 to $25 per year) or require a minimum balance.

Contribution limits and timing

The contribution limit for 2024 is $7,000 per year, or 100% of the child's earned income, whichever is less. This limit resets on January 1 each year. You can contribute for the current year until December 31, or for the prior year until the tax filing deadline (usually April 15 of the following year).

If your child earned $4,000 in 2024, you can contribute up to $4,000 to their 2024 Roth IRA by December 31, 2024. You can also contribute to their 2023 Roth IRA (if you did not already max it out) until April 15, 2025. The contribution must come from the child's earned income, but the money to fund the account can come from you — you are not required to give the child cash and have them deposit it themselves.

There is no age limit for opening a Roth IRA. A 7-year-old with earnings from acting can have one. There is also no age limit for contributions, as long as the child has earned income that year.

What happens when the child turns 18 or 21

When the child reaches the age of majority in your state (18 in most states, 21 in a few), the custodial account automatically converts to a standard Roth IRA in the child's name. You lose control of the account. The child can then withdraw money, change investments, or close the account entirely — there is nothing you can do to stop them.

This is why some parents hesitate to open these accounts. A 17-year-old with $50,000 in a custodial Roth IRA can withdraw all of it the day they turn 18, pay income tax on any earnings (not the contributions), and spend it on a car. The account is legally theirs. You can discuss the long-term benefits of leaving the money invested, but you cannot force them to keep it there.

Some parents address this by contributing smaller amounts each year, or by waiting until the child is older and more financially mature. Others view it as a teaching opportunity — the account belongs to the child, and the decision to keep it invested is theirs to make.

Tax implications and reporting

Contributions to a Roth IRA are made with after-tax money — you do not get a tax deduction. The money grows tax-free inside the account, and withdrawals in retirement are tax-free (provided the account has been open at least five years and the child is at least 59½ when they withdraw).

If the child has earned income, they may be required to file a tax return. The threshold depends on their filing status and type of income. For 2024, a dependent child with only W-2 wages must file if their income exceeded $14,600. A child with self-employment income must file if their net self-employment income was $400 or more. You should consult a tax professional to determine whether your child needs to file.

The Roth IRA contribution itself does not appear on the child's tax return — it is made after taxes. However, if the child has self-employment income, they will need to file a Schedule C (or Schedule C-EZ) to report that income and calculate self-employment tax.

Early withdrawal rules for custodial accounts

One of the main advantages of a Roth IRA is that you can withdraw your contributions (not the earnings) at any time without penalty. This applies to custodial Roth IRAs as well. If you contributed $3,000 and the account grew to $3,500, you can withdraw the $3,000 contribution penalty-free. The $500 in earnings would be subject to income tax and a 10% penalty if withdrawn before age 59½.

In practice, most parents do not withdraw from their child's Roth IRA. The account is meant to grow for decades. But the option exists if you face a genuine financial emergency.

There are a few exceptions to the early withdrawal penalty: withdrawals for a first-time home purchase (up to $10,000 lifetime), withdrawals for may have access to education expenses, and withdrawals for certain medical expenses. These exceptions apply to custodial accounts as well, though they are rarely used for children.

Frequently Asked Questions

Can I open a Roth IRA for my child if they do not have a Social Security number?

No. The child must have a Social Security number or Individual Taxpayer Identification Number (ITIN) to open a Roth IRA. If your child does not have one, you will need to obtain it from the Social Security Administration before opening the account.

What if my child earned money but I did not report it to the IRS?

You should report the income and file a tax return if required. The Roth IRA contribution limit is based on reported earned income, and the IRS can audit both the return and the account. It is better to report the income correctly from the start than to face penalties later.

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

No. The contribution limit is strictly tied to earned income. If your child earned $2,000, you cannot contribute $7,000 to their Roth IRA, even if you have the money. You can contribute only up to $2,000.

What happens if my child withdraws all the money when they turn 18?

The account is legally theirs at that age, and they can withdraw it. You can discuss the benefits of long-term investing, but you cannot prevent the withdrawal. Contributions can be withdrawn tax-free; earnings will be taxed as income and subject to a 10% penalty.

Is there a difference between a custodial Roth IRA and a regular Roth IRA for tax purposes?

No. The tax treatment is identical. Money grows tax-free, and may have access to withdrawals in retirement are tax-free. The only difference is that a parent controls the account until the child reaches the age of majority.