This article is general education, not personalized financial advice. Every financial situation is different. For current contribution limits and eligibility rules, check IRS.gov or speak with a qualified tax professional.
The summer I was 17, I made about $7 an hour at Dunkin’ Donuts and thought I was rich. I was not. But looking back, I had something far more valuable than I realized: earned income.
If someone had opened a Roth IRA in my name that summer and contributed even a few hundred dollars, that money would have had decades to grow, completely tax-free. Nobody did. And eventually, when I finally learned what a Roth IRA was, my income had already grown past the contribution limits. The window had closed. For good.
That is the reason parents ask this question. And the good news: yes, you absolutely can open a Roth IRA for your child. There is one real requirement. Your child has to have earned income.
The one rule: A child can have a Roth IRA as long as they have earned income in a given year. A parent can make the contributions on their behalf, up to whatever the child actually earned.
What “Earned Income” Actually Means for a Child’s Roth IRA
This is the detail that trips people up, so it is worth being precise.
Earned income means money from work: wages from a job, tips, and self-employment income from things like babysitting, mowing lawns, or selling items online. It does not mean an allowance, a birthday gift from a relative, interest from a savings account, or any investment income. The IRS cares about wages from actual work.
The contribution limit for a child’s Roth IRA is the lesser of two numbers: the child’s actual earned income for the year, or the annual IRS contribution limit. So if your 15-year-old earns $2,000 over the summer, the most you can contribute to their Roth IRA that year is $2,000, regardless of what the annual IRS limit says.
The IRS contribution limit adjusts periodically. Always check IRS.gov for the current year’s number before contributing.
One more note: Roth IRAs have income phase-out limits. For most working teenagers, this is not a practical concern because their income sits far below any threshold. But if your child is a young professional athlete or actor earning significant income, check the IRS eligibility rules directly.
What a Custodial Roth IRA Is (and How It Works)
Because your child is a minor, they cannot open a financial account on their own. A custodial Roth IRA solves that.
It is a Roth IRA opened in your child’s name, with a parent or guardian listed as the custodian. You manage the account on their behalf until they reach adulthood. At that point, the account passes fully to them. The age this happens depends on your state, typically 18 or 21.
The account belongs to the child. The money in it is theirs. As custodian, you are the responsible adult who can make investment decisions on their behalf until they are old enough to take over. When they do, the account does not change or restart. It just becomes theirs to manage directly.
What the Numbers Actually Look Like
This is the part I wish someone had shown me when I was earning my first paycheck.
Say a 14-year-old works a summer job and earns $3,000. A parent contributes $3,000 to their custodial Roth IRA. Here is what that single contribution could look like over time, using a 7% annualized return, which is the commonly cited historical inflation-adjusted average for a broad stock index fund:
| Child’s Age | Years of Growth | Approximate Value |
|---|---|---|
| 14 (contributed) | 0 | $3,000 |
| 30 | 16 | ~$8,900 |
| 45 | 31 | ~$24,400 |
| 65 | 51 | ~$95,000 |
Assumes 7% annualized return, compounded annually. Market returns vary and are not guaranteed. These figures are illustrative, not a forecast.
One summer’s contribution. No additional money added. $3,000 turning into roughly $95,000 withdrawn tax-free in retirement.
That is not a promise. The point is compound growth over a very long timeline, and a child has the longest timeline of anyone.
And here is why Roth accounts are especially well-suited for young earners: Roth contributions are made with after-tax money. You pay taxes on the money before it goes in, and then you never pay taxes on the growth again. When your income is low, your tax rate on those contributions is also low. That is the window. Once income rises, the window narrows or closes. I know this firsthand.
How to Open a Custodial Roth IRA (Step by Step)
Step 1: Confirm your child has earned income
Before anything else, establish that the income is real and qualifies. A W-2 from an employer is the clearest case. Self-employment income (babysitting, lawn mowing, a small online business) also counts, but the child should be able to document it since it represents wages from actual work.
Step 2: Choose a brokerage
Several major brokerages offer custodial Roth IRA accounts, including Fidelity, Charles Schwab, and Vanguard. Look for no account minimums and no ongoing maintenance fees, since the contribution amounts for a young worker may be modest at first.
Step 3: Open the account
You will apply as the custodian on behalf of your minor child. The application will ask for your information and your child’s Social Security number. Most brokerages allow this online and the process typically takes under 30 minutes.
Step 4: Make the contribution
You or the child can contribute, as long as the total for the year does not exceed the child’s actual earned income. You do not have to fund it on the day you open the account. Contributions for a given tax year can typically be made through the tax filing deadline of the following year.
Step 5: Choose investments
Once the money is in the account, it needs to be invested. It does not grow by sitting in cash. For many families starting with small amounts and a 40-plus year timeline, a broad low-cost index fund is a common choice. The right investment decision depends on your family’s situation and risk tolerance. Consult IRS.gov for account rules and a financial professional for investment guidance.
Note: Roth IRA contributions (the money you put in, not the earnings) can be withdrawn at any time, for any reason, without taxes or penalties. Earnings are subject to different rules around account age and the account holder’s age. The money is not permanently locked away, but the goal for most families is to let it grow undisturbed.
What to Expect Over Time
A custodial Roth IRA does not have to be a one-time event. If your child works during summers throughout high school and into college, each year of earned income is another opportunity to contribute.
Even small, consistent contributions across five or six teenage working years can produce a meaningful account balance by the time your child reaches adulthood. And when the account passes to them, they can continue contributing in any year they have earned income and qualify under the income limits.
There is also a less-quantifiable benefit: building the habit early. A teenager who sees a retirement account in their name, even a small one, often develops a genuine interest in how investing works and what it means to let money grow. That is not guaranteed, but it is a more useful introduction to personal finance than anything I sat through in school.
A Note on How This Feels
I want to be honest about why this topic stays with me.
I spent my late twenties working three jobs to pay off a debt I had taken on for the wrong reasons. During that stretch, I kept my 401(k) contributions at the minimum to capture my employer’s match, because that was the right call, but I was not contributing to a Roth IRA. I go deeper into how I think about that 401(k) contribution decision in Should I Max Out My 401(k)?. I did not even know it was an option for me at my income level.
By the time I had financial breathing room to look into it, I learned two things at once: what a Roth IRA was, and that my income had grown past the point where I could contribute directly. The window that would have been wide open at 17, or at $30,000 a year, had closed.
The regret is very specific. It is not “I wish I had saved more money.” It is “I wish someone had handed me a piece of paper at my first job and told me exactly what to do.” You can be that person for your child. The account takes less than 30 minutes to open.
Your One Next Step
If your child has earned any income this year, find out whether your brokerage offers a custodial Roth IRA. Fidelity and Charles Schwab both do with no account minimums; Vanguard does as well, though some of its individual funds carry their own minimums. Look at the account requirements before year-end.
That is the whole step. You do not have to fund it today.
Quick Recap
- A child can have a Roth IRA as long as they have earned income, and a parent can open and manage a custodial account on their behalf until the child reaches adulthood.
- The annual contribution limit is capped at the child’s actual earned income, so even a modest summer job creates a real opportunity.
- The Roth advantage is especially powerful for young earners: contributions go in at a low tax rate now, and decades of compound growth come out tax-free later.
Common Questions
Does the money have to come from the child’s paycheck?
No. A parent can contribute to the child’s custodial Roth IRA on their behalf, as long as the total contribution for the year does not exceed what the child actually earned. The source of the funds does not matter to the IRS. The child’s earned income is simply the ceiling.
What if my child does not have a W-2?
Self-employment income counts. If your child babysits, mows lawns, or does other work for pay, that income qualifies even without a formal W-2. The income should be documented and may need to be reported on a tax return depending on the amount earned. Check IRS.gov for current self-employment tax thresholds for minors.
Can my child withdraw the money before retirement?
Roth IRA contributions (the principal you put in) can be withdrawn at any time without taxes or penalties. Earnings are subject to different rules: generally they are taxable and may carry a penalty if withdrawn before age 59.5, unless specific exceptions apply. For most families, the intent is to leave the account untouched, but knowing the money is not entirely inaccessible can make the decision to open one easier.
What happens when my child turns 18?
The custodianship ends when your child reaches the age of adulthood under your state’s law, typically 18 or 21. At that point the account transfers to them fully and they take over management. They can continue contributing in any year they have earned income and fall within the IRS income limits.
Resources
These resources can help you understand the rules and get started. This site has no financial relationship with any of the following.
- IRS Roth IRA overview (official rules, current contribution limits, and eligibility requirements)
- IRS Publication 590-A (detailed IRA contribution rules)
- Fidelity and Charles Schwab offer custodial Roth IRA accounts with no account minimums; Vanguard offers one as well, though some individual funds carry their own minimums
Related reading:
- Investing for Beginners: How I Actually Think About It
- What Happens to Your 401(k) When You Leave a Job?
- Needs vs. Wants: How to Decide Without Feeling Deprived
John Cho is the founder of BeginnerFinanceHub.com, a resource for people who are new to personal finance and want a calm, clear place to start. Learn more about John →