With many opportunities for teens to earn money through summer jobs, after-school employment, and self-employment, now is a good time to consider opening a Roth IRA for your minor child.
Starting retirement savings early gives children an opportunity to benefit from decades of potential tax-free investment growth. Even relatively small contributions can grow substantially over time through compounding.
Here’s what parents should know about custodial Roth IRAs, including eligibility requirements, 2026 contribution limits, and tax benefits.
What Is a Roth IRA?
A Roth IRA is an individual retirement account funded with after-tax dollars. Unlike contributions to a traditional IRA, Roth IRA contributions aren’t tax-deductible. However, qualified withdrawals, including investment earnings, are tax-free.
A Roth IRA offers several advantages:
- Tax-free qualified withdrawals: Investment earnings and contributions can be withdrawn tax-free when IRS requirements are satisfied.
- No required minimum distributions: Original account owners aren’t required to withdraw money during their lifetime.
- No maximum contribution age: Individuals of any age can contribute as long as they meet the eligibility requirements.
- Flexible access to contributions: Regular contributions can generally be withdrawn at any time without income tax or early withdrawal penalties.
The account must be specifically designated as a Roth IRA when opened. Although traditional and Roth IRAs share some rules, their tax treatment differs significantly.
How Custodial Roth IRAs Work for Minors
Children can own Roth IRAs, even if they are too young to open and manage a brokerage account independently.
A custodial Roth IRA, sometimes called a Roth IRA for Kids, is opened and managed by an adult custodian on behalf of the minor.
Here’s how it works:
- Account ownership: The Roth IRA belongs to the child, not the parent or custodian.
- Account management: The custodian opens the account, manages investments, oversees contributions, and receives account statements.
- Control of funds: The custodian must manage the account for the child’s benefit.
- Transfer of control: When the child reaches the applicable age under state law and the custodial arrangement, control transfers to the child.
Depending on state law and the terms of the custodial account, the transfer generally occurs at age 18 or 21. Parents should confirm the applicable age when establishing the account.
Earned Income Is Required to Contribute
A minor must have earned income to qualify for Roth IRA contributions. There is no minimum age requirement.
Qualifying earned income can come from:
- Wages from a summer or after-school job.
- Part-time or seasonal employment.
- Babysitting and pet sitting.
- Lawn mowing and other self-employment activities.
- Other legitimate work performed for compensation.
Investment income, gifts, and allowances generally don’t qualify as earned income.
For self-employed teens, keep records of income and business expenses. Net self-employment earnings of $400 or more generally trigger a federal income tax return filing requirement and self-employment tax obligations, including Social Security and Medicare taxes.
Most teens with modest wages from employment won’t necessarily be required to file a federal income tax return. However, keeping W-2 forms, invoices, payment records, and a written log of hours worked is important to document eligibility for Roth IRA contributions.
2026 Roth IRA Contribution Limits
For the 2026 tax year, the maximum annual contribution to traditional and Roth IRAs combined is $7,500, or the child’s taxable compensation for the year, whichever is less.
For example:
- If your child earns $3,000 during 2026, the maximum IRA contribution is $3,000.
- If your child earns $7,500 or more, the maximum contribution is $7,500.
- If your child earns $5,000, the maximum contribution is $5,000.
Parents, grandparents, or other family members can provide the money for the contribution. The child doesn’t necessarily have to deposit the exact dollars earned from working. However, total contributions cannot exceed the child’s eligible compensation or the annual IRA limit.
Example: If your child earns $3,000 but contributes only $1,500, you can contribute the remaining $1,500 on their behalf. The combined contribution cannot exceed $3,000.
Roth IRA Income Restrictions
Roth IRA contributions are also subject to modified adjusted gross income (MAGI) limitations.
For 2026, the income phaseout ranges are:
- $153,000 to $168,000 for single filers and heads of household.
- $242,000 to $252,000 for married couples filing jointly.
- $0 to $10,000 for married individuals filing separately who lived with their spouse during the year.
These limits generally won’t affect most working teens, but they are part of the eligibility rules. The applicable income is the child’s own modified adjusted gross income.
When Can You Make Contributions?
You can contribute to a Roth IRA throughout the year or by the federal income tax filing deadline for that tax year, excluding extensions.
For 2026 contributions, the deadline for most taxpayers is April 15, 2027.
Be sure to identify the correct tax year when making contributions after December 31.
Understanding Roth IRA Withdrawals
One advantage of a Roth IRA is that regular contributions can generally be withdrawn at any time without income tax or the 10% early withdrawal penalty.
However, investment earnings have different rules.
To withdraw earnings tax-free, a distribution generally must meet the five-year holding requirement and one of the qualifying conditions, such as reaching age 59½, becoming disabled, or meeting certain first-home purchase requirements.
This distinction is important. Contributions and investment earnings don’t receive identical tax treatment.
Although the account is intended for long-term retirement savings, access to regular contributions provides some flexibility if your child encounters unexpected financial needs.
Start Your Child’s Retirement Savings Early
A custodial Roth IRA can be a valuable way to introduce children to saving, investing, and long-term financial planning.
Even modest contributions made during the teenage years have the potential to grow significantly over several decades. The earlier your child starts, the more time their investments have to benefit from compounding. If you’re considering a Roth IRA for your child, contact us with your questions. We can help you understand the tax rules, contribution requirements, and financial considerations involved in getting started.