Custodial Roth IRA for Kids: How It Works
A custodial Roth IRA for kids is a retirement account an adult opens and manages for a minor who has earned income. The child owns the account; the adult controls it until the child reaches the age of majority.
Money grows tax-free, and qualified withdrawals in retirement are tax-free too. But there is one hard gate: the child must have earned income to contribute.
No earned income means no funding — full stop.
What a custodial Roth IRA is
A custodial Roth IRA is a normal Roth IRA titled for a minor, with an adult acting as custodian. The adult opens it, funds it, and picks the investments. The child is the legal owner.
Control transfers to the child when they reach the age of majority in their state, usually 18 or 21. After that, the account is theirs to manage.
Because it is a Roth, contributions go in after tax. There is no upfront deduction. The payoff comes later: decades of tax-free growth. For a young saver, that runway is the whole point. See how a Roth stacks up against other options in our best investment account for kids guide.
The earned-income rule (the key gate)
This is the rule that decides everything. A child can only contribute if they have earned income for the year. A newborn or a kid with no job cannot have a funded Roth IRA — there is nothing to base a contribution on.
The contribution limit is the lesser of the child's earned income or the annual IRA limit. For 2025, that annual limit is $7,000. So a teen who earns $3,000 can contribute up to $3,000, not $7,000. A teen who earns $9,000 is still capped at $7,000.
The IRS is clear: yearly contributions to all of your IRAs cannot be more than $7,000, or, "if less, your taxable compensation for the year." Earned income is the ceiling.
What counts as earned income (and documenting it)
Earned income means money paid for work. A W-2 job — a summer job, retail, lifeguarding, a paper route — clearly counts. Self-employment counts too: babysitting, lawn mowing, tutoring, dog walking, or reselling.
What does not count: allowance, birthday cash, gifts, or investment income. Those are not earned.
Here is the non-obvious part. You must be able to prove the income. If your child does self-employment work, keep records — dates, who paid, how much, and for what. A simple log or invoices is enough. If the IRS ever asks how a Roth got funded, undocumented "chore" money will not hold up. No documented earned income, no valid contribution.
How to open a custodial Roth IRA
The process is short. Pick a brokerage that offers custodial Roth IRAs — many major low-cost brokers do. Open the account under the adult's name as custodian, with the child as beneficial owner.
You will need the child's Social Security number and basic details, plus your own information as custodian.
Then fund it, up to the child's earned income for the year (or $7,000 for 2025, whichever is less). The money does not have to be the child's exact paycheck — a parent can gift the contribution — but the child must have earned at least that much. Finally, invest it. A broad, low-cost index fund is a common, simple choice. Model the long-term math with our investment calculator.
Tax-free growth and flexible withdrawals
The Roth advantage is tax-free growth. Contributions are after-tax, so qualified withdrawals in retirement come out completely tax-free — including decades of earnings.
There is also built-in flexibility. Contributions (not earnings) can be withdrawn anytime, tax- and penalty-free. If your teen puts in money and later needs it, the amount they contributed is accessible.
One caution: pulling contributions out early erases the tax-free growth that money would have earned. The account works best when the money stays invested for the long haul. For a comparison with education-focused accounts, see custodial Roth IRA vs 529.
Why it is a powerful retirement head start
Time is the reason. A dollar invested at 15 has 50 years to compound before a normal retirement age. That is a head start most adults never get.
Starting young also builds the habit. A teen who watches their own account grow learns how investing works before they have real bills.
A custodial Roth is not the only kids' account, and it is not always the right one — it depends on whether the child earns income. Compare it with a flexible custodial account in custodial Roth IRA vs UTMA, with the new federal option in Trump Account vs Roth IRA, and with the pre-tax alternative in custodial Roth IRA vs Traditional IRA.
Frequently asked questions
Can I open a custodial Roth IRA for a child with no income?
No. A custodial Roth IRA can only be funded if the child has earned income for the year. Without earned income, there is no allowable contribution, so a newborn or a child with no job cannot have a funded Roth IRA.
What is the contribution limit for a custodial Roth IRA?
The limit is the lesser of the child's earned income or the annual IRA limit, which is $7,000 for 2025. A child who earns $2,500 can contribute up to $2,500; a child who earns more than $7,000 is still capped at $7,000.
What counts as earned income for a child's Roth IRA?
Earned income is money paid for work, such as a W-2 job or self-employment like babysitting, lawn mowing, or tutoring. Allowance, gifts, and investment income do not count, because they are not earned.
Do I need to document my child's earned income?
Yes. You should keep records of the income used to justify a contribution, especially for self-employment. A simple log of dates, amounts, and who paid — or invoices — protects the contribution if the IRS ever asks how the account was funded.
Can my child withdraw money from a custodial Roth IRA?
Contributions can be withdrawn anytime, tax- and penalty-free, but earnings generally cannot be withdrawn tax-free until retirement age and other conditions are met. Pulling money out early sacrifices future tax-free growth.
Who controls a custodial Roth IRA?
The adult custodian controls the account until the child reaches the age of majority, usually 18 or 21 depending on the state. After that, the child takes full control of the account they own.
Sources
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