So, you want to set your child up with a Roth IRA. It’s a fantastic idea, and simpler than you might think. The whole process really boils down to three things: your child needs to have real, earned income; you’ll open a special custodial Roth IRA for them at a brokerage; and whatever you contribute can’t be more than what they earned that year (or the annual IRS limit, whichever is lower).
Get those pieces in place, and you unlock the potential for decades of tax-free growth. We’re talking about turning small, early savings into a seriously impressive nest egg down the road.
Give Your Child a Multimillion-Dollar Head Start
Imagine giving your child a path to financial freedom before they can even get a driver’s license. That’s the incredible power of a Roth IRA for a child. This isn’t just another savings account; it’s one of the most impactful financial gifts you can give, fueled by the magic of tax-free growth over many, many years. A lot of parents think this is some complex strategy for Wall Street pros, but it’s surprisingly accessible.
This guide is here to walk you through it, step-by-step. We’ll cover how to handle your child’s income, pick the right account, and start contributing. Think of it less as a dry financial task and more as a foundational lesson in building long-term wealth.
The Power of an Early Start
The real magic behind opening a Roth IRA for a minor is a concept you’ve probably heard of: compound interest. When you give investments decades to grow, the returns start earning their own returns, creating a snowball effect. Starting this process in childhood puts that snowball at the top of a very, very long hill.
Kicking off saving at a young age can make a massive difference in their future retirement fund—potentially adding millions—all thanks to those extra decades of tax-free growth. You can dive deeper into the benefits of an early investing start on Investopedia. This extended time horizon is a unique advantage they can never get back later in life.
To put it in perspective: a single $7,000 contribution to a Roth IRA, with nothing else added, could balloon to nearly $140,000 over 50 years, assuming a 6% annual return. That’s the raw power of long-term, tax-free compounding at work.
Key Concepts to Understand
Before we jump into the “how-to,” let’s get a few key ideas straight. Nailing these down will make the whole process feel much less intimidating.
- Custodial Account: A minor can’t legally open their own investment account, so you’ll open one as the custodian. You manage the account until your child reaches the “age of majority” in your state (usually 18 or 21). At that point, the account and all its assets become theirs to control.
- Earned Income: This is the non-negotiable rule. The child must have legitimate earned income. This could be from a W-2 job or self-employment gigs like babysitting, mowing lawns, or even modeling for a family business. Gifts and allowance money don’t count.
- Tax-Free Growth & Withdrawals: You contribute with money that’s already been taxed (post-tax dollars). Here’s the beautiful part: the money grows completely tax-free, and all qualified withdrawals in retirement are also 100% tax-free. This is a huge leg up over traditional retirement accounts where you pay taxes on the back end.
To make this even clearer, here’s a quick table breaking down the essential steps to get started.
Quick Guide to Opening a Child’s Roth IRA
This table summarizes the core requirements and gives you a practical look at what each step involves.
| Requirement/Step | Key Detail | Example |
|---|---|---|
| Earned Income | Your child must have legitimate income from a job or self-employment. The amount they earn sets their contribution limit for the year. | Your 15-year-old earns $2,500 from a summer job at a local café. Their maximum Roth IRA contribution for the year is $2,500. |
| Open a Custodial Account | As the parent or guardian, you open a “custodial” Roth IRA at a brokerage like Fidelity, Schwab, or Vanguard. You are the custodian. | You go to Fidelity’s website, select “Open a Roth IRA for a kid,” and fill out the application with your information as the custodian and your child’s as the beneficiary. |
| Document Everything | Keep clear records of your child’s income, especially for self-employment. This creates a paper trail for the IRS. | For lawn-mowing income, create a simple log or spreadsheet tracking dates, clients, services, and payments received. Keep copies of any checks or digital payment receipts. |
| Make Contributions | You can contribute up to your child’s total earned income for the year, not to exceed the annual IRA limit (which is $7,000 for 2024). | Your child earned $1,000 babysitting. You (or they) can contribute up to $1,000 into their Roth IRA. If they earned $8,000, the contribution is capped at $7,000. |
| Invest the Funds | Once the money is in the account, you must invest it. A simple, low-cost index fund or target-date fund is a great starting point. | You invest the $1,000 contribution into a total stock market index fund (like VTI or FZROX) to give it broad market exposure and long-term growth potential. |
Getting these basics right from the start ensures you’re setting up the account correctly and staying compliant with IRS rules, paving the way for a smooth and powerful investing journey for your child.
The Earned Income Rule You Absolutely Must Follow
If there’s one rule to get right when opening a Roth IRA for a child, this is it. It’s the absolute foundation of the entire strategy, and the IRS is incredibly clear on this point: a minor must have legitimate earned income to be eligible.
So, what actually counts? It’s not just about a formal job with a W-2. The IRS defines earned income as taxable income and wages, which really opens up the possibilities for kids with an entrepreneurial spirit. We’re talking about real money for real work—not gifts or an allowance for their usual chores around the house.
What Qualifies as Earned Income
Think beyond the classic teenage summer job. Plenty of self-employment gigs fit the bill perfectly and can get your child’s investment journey started years ahead of schedule. The only real catch is that the pay has to be reasonable for the work they’re doing.
Here are some real-world examples of work that qualifies:
- Babysitting or Pet Sitting: A timeless and easy-to-document job for a responsible kid earning money from neighbors and family friends.
- Lawn Mowing and Yard Work: Shoveling snow, raking leaves, or handling basic landscaping for people in your community is legitimate work.
- Freelance Skills: Does your kid have a talent for coding, graphic design, writing, or editing videos? These are highly marketable skills.
- Tutoring Younger Kids: Helping other students with subjects they’ve already mastered is a fantastic example of earned income.
- Modeling for a Family Business: If you own a business and your child models for your website or ads, you can pay them a fair market rate for their time.
The key here is that the work must be genuine. You can’t just hand your kid $500 for taking out the trash once and call it “earned income.” The IRS can sniff out these kinds of arrangements, so it’s crucial to keep everything above board. To get a complete picture of the guidelines, you can explore the various Roth IRA for minors rules that spell out all the eligibility details.
The Golden Rule of Contributions
Once your child has that earned income, there’s a simple but firm rule for how much you can actually put into their Roth IRA for the year.
The total contribution cannot exceed the child’s total earned income for that year, or the annual IRS contribution limit, whichever is less.
For 2024, the annual contribution limit for anyone under 50 is $7,000. So, if your daughter earns $3,000 from her babysitting business, her maximum Roth IRA contribution for the year is $3,000. If she has a fantastic year and earns $10,000, her contribution is capped at the $7,000 annual limit. It’s a straightforward ceiling that keeps you from over-contributing.
Building a Bulletproof Documentation System
If your child’s income doesn’t come with an official W-2, creating a clear paper trail is non-negotiable. This is your proof, your backup, your peace of mind if the IRS ever comes asking questions.
A good system doesn’t have to be complicated. A simple spreadsheet or even a dedicated notebook can do the job beautifully.
Here’s what that might look like for a babysitting gig:
Sample Income Log for Babysitting
| Date | Client Name | Hours Worked | Rate | Total Paid | Payment Method |
|---|---|---|---|---|---|
| June 15, 2024 | Smith Family | 4 hours | $15/hr | $60 | Check #123 |
| June 22, 2024 | Jones Family | 3 hours | $15/hr | $45 | Venmo |
| June 29, 2024 | Smith Family | 5 hours | $15/hr | $75 | Check #125 |
For every single job, you need to be able to show:
- The date the work was done.
- Who paid for the work (the client’s name).
- A description of the service (“Mowed lawn,” “Designed logo”).
- How much they were paid.
- Proof of payment—a copy of the check, a Venmo screenshot, or a signed receipt works great.
This kind of meticulous record-keeping is your best defense. It turns those informal side hustles into legitimate, documented income, satisfying the single most important requirement for your child’s Roth IRA. Without it, you’re taking a big risk that could undo all of your smart planning.
Choosing the Right Custodial Roth IRA Provider
Alright, you’ve confirmed your kid has legitimate earned income and you’ve got a system to track it. Now for the exciting part: choosing a financial home for their new account.
This isn’t just a box to check. Picking the right brokerage really does set the stage for your child’s entire investing journey. The firm you choose will determine everything from the fees they pay (or hopefully, don’t pay) to the investments available and how easy the whole thing is to manage. It’s a decision that can feel overwhelming, but it’s actually pretty straightforward once you know what to look for.
What to Look for in a Provider
When you’re starting a Roth IRA for a kid, you’re playing the long game. Your priorities are completely different from someone trading stocks every day. You need to focus on a handful of core features that will serve your child well for decades.
- No Account Minimums: You need the flexibility to open an account with whatever you have and contribute small amounts, especially when your child’s income is sporadic. A $0 minimum isn’t just a “nice-to-have”—it’s a must.
- Zero Trading Fees: The industry standard has thankfully shifted. You should absolutely not be paying a commission to buy or sell basic investments like stocks or exchange-traded funds (ETFs).
- Broad Investment Selection: The provider should offer a huge menu of low-cost index funds and ETFs. These are the bread and butter for building a simple, diversified, long-term portfolio for a young investor.
- Intuitive User Platform: Let’s be honest, you’ll be managing this for a while. The website or app should be easy for you to navigate now, and simple enough for your child to understand when they’re ready to get more involved.
Top Brokerages for Custodial Roth IRAs
The good news is that several of the big-name brokerages have really stepped up, making them fantastic choices for families. While most firms offer Roth IRAs, you have to specifically look for ones that provide custodial versions. Not all of them do.
Some of the most respected institutions now offer custodial Roth IRA accounts with no minimum balance and $0 fees per trade. This makes it incredibly easy to get started. As of April 2025, top-rated options from NerdWallet include powerhouses like Charles Schwab, Interactive Brokers (with its IBKR Lite plan), and Fidelity. You can see a great rundown of their highly-rated custodial IRA offerings to compare them side-by-side.
Once you pick a provider, the application itself is pretty painless. This graphic gives you a sense of what the enrollment form looks like.
As you can see, it’s mostly about gathering basic information for both you (the custodian) and your child (the account owner).
Comparison of Top Custodial Roth IRA Providers
To make this even clearer, let’s put the top contenders head-to-head. I’ve focused this table on the features that matter most when you’re just starting out with a child’s account.
| Provider | Account Minimum | Trading Fees | Key Investment Options | Best For |
|---|---|---|---|---|
| Fidelity | $0 | $0 | Its own line of ZERO expense ratio index funds (FZROX, FZILX), plus thousands of other funds and ETFs. | Parents who want the absolute lowest-cost index funds and a super user-friendly platform. |
| Charles Schwab | $0 | $0 | A wide variety of low-cost Schwab index funds, ETFs, and their Schwab Stock Slices for fractional share investing. | Families who value great customer support and want the ability to buy small pieces of individual stocks. |
| Interactive Brokers (IBKR Lite) | $0 | $0 | Global market access and a powerful trading platform. Can be a bit more complex. | More experienced investors or those who want to introduce their child to a wider range of securities down the road. |
This table should help narrow down your choice, but honestly, you can’t go wrong with any of these major firms. They’ve all built their reputations on being reliable and affordable.
For most parents, simplicity and low costs are king. A provider like Fidelity or Schwab is often the perfect starting point, giving you everything you need without any confusing features or fees that will eat into those precious long-term returns.
Your final decision will likely come down to which platform feels most comfortable to you. The most important thing isn’t agonizing over the tiny details—it’s picking one and getting that account open.
A Practical Walkthrough of Account Setup and Funding
Alright, you’ve done the hard work of vetting the providers and have a winner. Now it’s time to roll up your sleeves and actually get this account up and running. The good news is that this part is surprisingly quick, but it always helps to know what’s coming before you click that “Open an Account” button.
The online application is your next move. While every brokerage’s website looks a little different, they all need the same core information. You’ll be opening a custodial account, which is just a fancy way of saying you’re the manager (the custodian) and your child is the owner (the beneficiary).
Because of this structure, you’ll need to provide personal details for both of you.
Gathering Your Information for the Application
To keep things moving smoothly, I always recommend getting all your documents and numbers ready before you start. This little bit of prep work can easily turn a 30-minute chore into a 10-minute task.
Here’s what you’ll typically need for both you (the custodian) and your child:
- Full legal name and home address
- Date of birth
- Social Security Number (SSN)
You’ll also have to provide your own employment details and answer a few standard questions about your financial background. This is a routine part of opening any investment account, so don’t be surprised by it. Once everything is submitted, most accounts get the green light within one or two business days.
For a deeper dive into the specific eligibility rules, our guide on whether a minor can have a Roth IRA breaks it all down.
The Logistics of Funding the Account
With the account officially open, the next move is getting money into it. This is where the earned income rule becomes very, very real. Just to recap: you can only contribute an amount equal to or less than what your child actually earned for the year.
The easiest way to fund the account is by linking a bank account—like your checking or savings—to the new custodial Roth IRA. This makes for a simple electronic transfer. You could set up recurring transfers, but for a kid’s fluctuating income, a one-time contribution usually makes more sense.
Key Takeaway: The money for the contribution doesn’t have to come directly from your child’s bank account. As a parent, you can “gift” them the money to make the contribution, as long as the total amount doesn’t exceed their documented earned income for that year.
A Real-World Funding Scenario
Let’s make this crystal clear. Imagine your 16-year-old, Alex, lands a summer internship and earns a cool $3,000. Alex, being a teenager, spends most of it on a new laptop and hanging out with friends. And you know what? That’s perfectly fine.
That $3,000 of earned income is what makes Alex eligible to contribute. It doesn’t mean the contribution has to be made with the exact same dollars he earned.
Here’s how you’d handle it in the real world:
- Verify the Income: You have the pay stubs from the internship, which total exactly $3,000. That’s your proof.
- Make the Contribution: You decide to fund the full amount for Alex as a gift. So, you log into the custodial Roth IRA, link your own bank account, and transfer $3,000 into it.
- Invest the Funds: The $3,000 is now sitting in the account as cash. Your job isn’t done yet! You still need to actually invest that money into something like a low-cost S&P 500 index fund or a target-date fund.
This “parent match” is such a powerful strategy. It teaches a profound lesson about saving without forcing your child to give up every dollar they worked so hard for. They get the immediate reward of their labor, plus the incredible long-term benefit of an investment you funded on their behalf. This is a common and perfectly legal approach, just as long as you never contribute a penny more than they officially earned.
Simple Investment Strategies for a Long-Term Horizon
Okay, so the account is open and funded. Now comes the part that often feels intimidating: what should you actually invest in? For a lot of parents, this is where analysis paralysis kicks in, but I promise it’s much simpler than you think.
Your child’s single greatest advantage is time. A massive amount of it. We’re talking about a potential investment horizon of 50, 60, or even 70 years.
This enormous timeline changes the entire game. It means you can—and should—completely ignore the day-to-day market noise, forget about complex trading strategies, and resist the temptation to pick the next “hot” stock. The most powerful strategy is a simple, diversified, low-cost approach that lets time and compounding do all the heavy lifting for you.
Embrace the Power of Passive Investing
The goal for a child’s Roth IRA isn’t to become a Wall Street trader. It’s simply to capture the long-term growth of the entire market. The best and easiest way to do this is through passive investing, which just means buying funds that automatically track a broad market index.
This “set it and forget it” philosophy is perfect for a custodial Roth IRA. You aren’t trying to outsmart professionals; you’re just hitching a ride on the power of the whole economy over several decades. Not only is this approach easier, but it has also historically beaten the majority of actively managed funds, especially over the long haul.
The real magic is letting compound interest work its wonders undisturbed. A one-time contribution of $7,000 can swell to nearly $140,000 in 50 years, assuming a 6% average annual return. The key is picking an investment that allows for that slow, steady, market-based growth.
Your Best Investment Choices
When you log into the brokerage account, you’ll be met with thousands of investment options. You can safely ignore 99% of them.
For a young investor with decades to go, you can boil it down to two powerhouse choices:
- Broad-Market Index Funds or ETFs: These are the gold standard for simple, long-term investing. An S&P 500 index fund (like FXAIX or VOO) invests in 500 of the biggest U.S. companies. A total stock market index fund (like FZROX or VTI) is even broader, covering thousands of U.S. stocks. Both are fantastic, low-cost ways to own a slice of the entire market.
- Target-Date Funds: Think of these as an “all-in-one” solution designed to be completely hands-off. You pick a fund with a year close to when your child might retire (like a “2080 Fund”). It starts out aggressive with a lot of stocks and automatically gets more conservative as that target date gets closer.
A Practical Example of Investing the Funds
Let’s put this into a real-world scenario. Your 14-year-old earned $1,500 from a summer lifeguarding job. You’ve opened and funded their custodial Roth IRA at Fidelity with that cash. Now what?
You could log in and use that $1,500 to buy shares of the Fidelity ZERO Total Market Index Fund (FZROX). And… that’s it. You’re done. Your child is now invested in thousands of U.S. companies, from Apple and Microsoft down to smaller, up-and-coming businesses.
Next year, if they earn $2,000 mowing lawns, you just repeat the process. This dead-simple, consistent approach is how you build serious wealth over a lifetime. There’s truly no need to overcomplicate things.
Turning Investing into a Financial Lesson
As your child gets older, this account becomes one of the best teaching tools you could ask for. At first, you can just show them the account statement once a year. Explain that the money from their hard work is now “working” for them, growing all on its own.
As they mature, you can get them more involved:
- Explain the “Why”: Help them see the difference between just saving money in a bank account and investing it for growth.
- Show Them What They Own: Log into the account and pull up the list of top holdings in their index fund. When they see familiar names like Amazon, Google, or Tesla, the concept of “owning a piece of a company” suddenly feels very real.
- Involve Them in Contributions: Once they get their first W-2, sit down with them to figure out their contribution limit and make the transfer into the Roth IRA together.
This process transforms the account from some mysterious thing you manage for them into their investment in their own future. It’s one of the most practical and powerful lessons in financial literacy you can give, setting them up for a lifetime of smart financial habits.
Alright, you’ve opened the account. That’s a massive first step, but a custodial Roth IRA isn’t a one-and-done deal. Your job as the custodian is a long-term commitment that changes as your child gets older. It’s not just about that first contribution; it’s about managing the account responsibly to secure its incredible potential.
Your most important duty is to keep up that detailed record-keeping for your child’s earned income. This is the absolute foundation of the account’s legality with the IRS. Every lawn mowed, every babysitting gig, every dollar earned needs to be logged. You’re creating a clear, unbroken paper trail that justifies every single contribution you make.
Beyond that, you’ll want to check in on the investments periodically. While a simple, low-cost index fund is a fantastic “set it and forget it” choice, a quick review once a year is just smart. This isn’t about trying to time the market—far from it. It’s just responsible oversight to make sure things are still on track.
The Big Transition: Handing Over Control
The real endgame here is the handover. This is the moment the account officially and legally becomes your child’s. It’s a huge financial milestone, and one you should be thinking about years before it happens.
This transfer takes place when your child hits the age of majority in your state, which is the age they can legally own financial accounts. This is usually age 18 or 21, but it can vary by state and even by the brokerage’s own rules. It’s a good idea to confirm this exact age with your provider long before your child’s 18th birthday so there are no surprises.
The process itself is mostly just paperwork. Your child will fill out a “Change of Registration” form (or something similar) from the brokerage. This document officially takes your name off as custodian and re-registers the account in their name alone.
Think of this as a graduation, not a loss of control. You’ve successfully managed their financial head start across the finish line. The new goal is to make sure they’re ready to grab the steering wheel.
Getting Your Child Ready for Financial Ownership
A smooth handover is about so much more than signing a form; it’s about education. The years leading up to this moment are your prime opportunity to prepare your young adult for the responsibility. After all, a teenager who suddenly gets a five-figure account dropped in their lap with zero context is a recipe for disaster.
Here’s a simple game plan to get them ready:
- Start the Money Talks Early: Around age 14 or 15, start talking about the account. Explain what it is and, more importantly, what it’s for—their distant future, not a new iPhone or concert tickets.
- Look at the Statements Together: Make it an annual ritual to sit down and go over the account statement. Show them the contributions you’ve made, the investment growth, and the magic of compounding in real life.
- Explain the “Why”: This is your chance to really drive home the concept of tax-free growth. Help them understand this isn’t just a savings account; it’s a special tool with rules designed to make them wealthy over decades if they just leave it alone.
When you demystify the account and build a sense of ownership long before the transfer, the final handover feels like a natural and empowering next step. You’re not just giving them an asset; you’re giving them the knowledge and discipline to manage it for the rest of their lives.
Clearing Up the Common Questions on Kids’ Roth IRAs
Once you get the basics down, a few specific “what if” scenarios almost always come up. It’s totally normal. Let’s walk through the most common questions I hear from parents so you can move forward with confidence.
Can I Pay My Child for Household Chores to Fund Their IRA?
This is probably the number one question I get, and the short answer is usually no. The IRS is pretty clear on this: you can’t pay your kid for normal family responsibilities and call it earned income. Things like making their bed, doing the dishes, or taking out the trash won’t fly.
But what if the job is something you’d otherwise hire someone to do? That’s where the line gets a little blurry in your favor. If you pay them a fair market rate to paint the fence, spend a weekend deep-cleaning the garage, or handle a big landscaping project, that could absolutely qualify. The trick is to treat it like a real job—document the work, agree on a fair wage, and keep records.
What Happens If We Accidentally Contribute Too Much?
It happens. A kid’s income can be unpredictable, and it’s easy to miscalculate and put in more than they actually earned for the year. This is called an excess contribution, and you’ll want to fix it to avoid a nagging IRS penalty.
Thankfully, the fix is straightforward.
- You need to withdraw the extra money you put in before that year’s tax filing deadline (usually around April 15th).
- You also have to pull out any investment earnings that the excess cash generated while it was in the account.
Just give your brokerage a call. They deal with this all the time and will guide you through the process of an “excess contribution removal.” As long as you handle it before the deadline, you’ll sidestep the 6% penalty the IRS charges for every year the extra money stays in the account.
Does My Child Need to File a Tax Return?
Not always. Having a Roth IRA and needing to file taxes are two separate things. Since a Roth is funded with after-tax money, the account itself doesn’t create a filing requirement.
The real question is about their income. For 2024, a dependent child generally only has to file a tax return if their earned income (from a job or side hustle) is more than $14,600. So, for most kids just starting out, a tax return won’t be necessary.
Ready to turn your child’s first job or side hustle into a powerful financial future? At RothIRA.kids, we provide the free tools and simple guides you need to get started. Explore our resources today at https://rothira.kids and give your child a decades-long head start on building wealth.