A custodial Roth IRA on a child's earned income

How it works

The only requirement is earned income in the child's own name, such as wages from a summer job, babysitting money that is reported, or pay from a family business. The contribution for a year cannot exceed the child's earned income or $7,500 (2026, verified on the official page), whichever is smaller. The money contributed does not have to be the child's own dollars, so a parent can put in an amount up to the child's earnings, which is treated as a gift. Contributions can be withdrawn at any time without tax, and earnings come out tax free after age 59 and a half once the account has been open five years. The custodian controls the account until the child reaches the state's age of majority, usually 18 or 21, when it becomes the child's own.

What it gives

Decades of tax free growth start early, and the five year clock on the Roth starts with the first contribution.

Contributions can be withdrawn any time without tax or penalty, so the money is not locked away.

A child's low tax bracket means the Roth's after tax contribution costs almost nothing in tax.

What it costs, or where the catch is

The child must have real, reported earned income, so allowance or gifts do not count.

The account becomes the child's property at the age of majority, with no say left for the parent.

A child's earnings must be documented, which means a W2 or a filed return for self employment income.

A worked example

Bea, age 16, earns $3,200 lifeguarding over the summer. Her father opens a custodial Roth IRA and contributes $3,200 on her behalf, matching her earnings, while she keeps her paychecks. If the account earns 7 percent a year for 50 years, that single $3,200 grows to about $94,000, since $3,200 times 1.07 raised to the 50th power is roughly that figure, and the growth comes out tax free in retirement.

Where it goes wrong

The frequent error is contributing more than the child actually earned in the year, which creates an excess contribution with a 6 percent yearly tax until it is removed.

Who confirms it for you

For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS: Roth IRAs. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.