- You can open a custodial Roth IRA for a child as long as that child has earned income.
- Anyone can contribute to the account as long as the contributions don't exceed the child's earned income.
- A custodian controls the custodial Roth IRA until the child reaches majority age.
It's never too early to start saving for your child's future. Kids have decades ahead of them to save for retirement, which puts them in the prime position to take full advantage of long-term investment strategies and the power of compounding with some of the best Roth IRA accounts.
IRAs are one of the best custodial accounts to set up for your kid, given the tax advantages of these accounts. In particular, custodial Roth IRAs are among the strongest tax-advantaged savings vehicles for growing long-term wealth.
Learn how to open a custodial Roth IRA and the tax advantages your kid can benefit from.
What is a custodial Roth IRA and how does it work?
Definition and overview of custodial Roth IRAs
A custodial Roth IRA is a tax-advantaged retirement account for children who have earned income. Like a regular Roth IRA account, contributions are made with after-tax dollars and can grow and be withdrawn tax-free later on, typically in retirement. The difference, however, is that a custodial Roth IRA is set up by a parent or other adult on behalf of a minor, and the child then gets control of the account when they reach the age of majority (varies by state, generally 18-21).
Not only are the tax benefits strong, but investing funds from a young age boosts the growth potential of your child's nest egg and promotes financial freedom later in life.
Saving and investing are key components of long-term wealth, but it typically takes time. Unfortunately, "most Americans lack the discipline to save an adequate amount as a percentage of their income," says Sam Davis, CFP, managing member and financial advisor at TBH Advisors. "So, inspiring savings early in a child's life can really help."
That being said, a custodial Roth IRA has limitations. In order to realize the full benefit of tax-free withdrawals and avoid penalties, the account owner usually has to wait until age 59 ½ to withdraw earnings, aside from a few exceptions. Still, retirement tends to be the main focus.
If you want to help your child save for other expenses outside of retirement, there may be more appropriate accounts, depending on the goals, such as a UTMA/UGMA or a 529 plan.
How it differs from a regular Roth IRA
Roth IRAs are among the best IRA accounts for individuals to grow their retirement savings. A custodial Roth IRA is no different in this regard, as it includes the same tax benefits, investment opportunities, and rules as regular Roth IRA accounts.
Regular IRA contribution limits apply, but keep in mind that with a custodial account, the rule on not contributing more than that year's taxable income applies to the child's annual earned income. So, if your daughter earns $3,000 by babysitting this calendar year, you can only contribute up to $3,000 to her custodial Roth IRA. The maximum contribution to a Roth IRA is $7,000 in 2025.
Otherwise, the main difference with a custodial Roth IRA is that an adult — typically a parent or guardian — invests and manages the account's contents until the child reaches the age of majority (18 to 25, depending on the state). However, all contributions are considered to be fully owned by the child right away, as they are technically the account owner, even though they don't get control until adulthood.
Benefits of a custodial Roth IRA
Tax advantages of a custodial Roth IRA
Custodial Roth IRAs provide several benefits, including tax advantages. Since Roths are funded with after-tax dollars (already taxed money), any earned interest, dividends, and capital gains grow tax-free and can later be withdrawn tax-free, typically after age 59 ½, assuming the account has been open at least five years. Custodial Roth IRA withdrawal rules are the same as regular Roth IRA withdrawal rules, meaning the child can end up having a large pool of money to withdraw from later in life, without owing any taxes on those funds.
"It's a great way to help educate their kids on the savings process while investing tax-efficiently," says Davis.
Tax-free withdrawals are especially beneficial for people who believe they will be in a higher tax bracket during retirement than during their working years. Considering children are likely to incur minimal to no income taxes anyway, putting in after-tax money now tends to make sense, as they would often be in a higher tax bracket later in life.
Financial flexibility of Roth accounts
Many people struggle to regularly save for long-term goals like retirement while balancing loan repayments and affording basic life expenses. However, an already-established custodial Roth IRA can give your kid a leg up. Once they reach the age of majority, they get control over the account and might be relieved of some of the financial pressure younger workers often feel toward the beginning of their careers.
In particular, your child may be in a better financial situation to pay off their loans or create additional savings buckets for other financial goals, like a future wedding or buying a home.
Roth IRAs can also double as emergency funds. In a pinch, the original contributions (excluding the growth) can be withdrawn tax and penalty-free at any time. If they were to withdraw earnings from the IRA before they reach the age of 59 ½ and don't have a qualifying exception, they'd have to pay a 10% penalty. Still, even that might be worth it in an emergency.
Long-term growth potential
Setting up a custodial Roth IRA for your kids now can help them secure a comfortable retirement later. The longer the money is in a Roth IRA, the more the funds can grow. A single $7,000 investment made today could be worth more than $300,000 in 50 years, assuming an 8% annual return.
Typically, younger investors are the best candidates for riskier investment opportunities. Riskier investments may yield higher returns with an increased chance of a substantial loss, but because your children likely have plenty of time to recover from market downturns, you might be able to invest more aggressively on their behalf so that decades from now they potentially have a large nest egg.
Custodial Roth IRA eligibility and requirements
Who can contribute to a custodial Roth IRA?
Like with a regular Roth IRA, children must have taxable compensation in order for an adult to contribute to the account. The contribution could directly come from the child's earned income, or a parent or guardian might make their own gift that matches the child's earned income or goes up to the annual limit.
That said, anyone can technically contribute to your child's Roth IRA, as long as the child has earned income. For example, the parent or guardian acting as the account's custodian can contribute, as can grandparents, friends of the family, and other relatives.
Earned income can come from entrepreneurial activities like babysitting, mowing lawns, dog-walking, wages from a job, tips, or prize money. Allowances do not count as earned income.
Custodial Roth IRA income requirements
For 2025, you aren't eligible to contribute to your own Roth IRA if you make $165,000 or more annually ($246,000 if you're married). However, with a custodial Roth IRA account, the income in question is the child's, not the person making the contribution. So, a parent who earns too much to put money into their own Roth IRA might still be able to contribute to their child's Roth IRA if the child has earned income below this limit.
That said, later in life, your child may eventually make too much money to continue funding the account after they gain control of the Roth IRA in adulthood. That's not necessarily a bad position to be in, as the account can continue to grow tax-free even without additional contributions, but it's something to be aware of.
Custodial Roth IRA contribution limits
In 2025, you can only contribute as much as the child's annual income, up to a maximum of $7,000. Many children won't earn enough to reach that limit, but helping them put away as much as possible can make a big difference in their long-term finances.
"One idea that we've seen families implement that seems to be a good motivator is to implement matching funds," says Davis. "Only invest for a child what they are willing to invest themselves." So, for example, if your kid is willing to sock away $3,000, you can kick in another $3,000, assuming they've earned at least $6,000 that year.
Because there are limits based on how much your child earns for the year, it's important to have records of those earnings. You can prove your child's income for a Roth IRA with a W2 or a Form 1099 from their employer or gig work provider. However, certain work like babysitting or mowing lawns generally doesn't provide these forms, so it's important to keep a record of the type of work the kid has done, when it took place, who it was for, and how much the kid was paid. This documentation might be something you help your child with but work on together so they understand the process better, and it's important for proper tax filing anyway.
How to set up a custodial Roth IRA
If you're ready to open a custodial Roth IRA for a child, the good news is that the process is typically straightforward. You can quickly create an account with one of the best online brokerages that offers Roth IRAs for minors.
To do so, you must provide some basic information such as the child's Social Security number, because the account is opened in the child's name. Then you'll fund the account, such as via a check or online transfer, and you'll select investments for the account. Some brokerages that offer IRAs for minors include:
Depending on the brokerage, the kid version may have a lower minimum deposit requirement.
Despite the many benefits, however, Davis cautions against using custodial Roth IRAs as an estate planning tool, i.e., to pass on wealth. "For some families, it makes more sense to use trusts, family limited partnerships, and other advanced planning techniques when considering generational wealth matters."
Custodial Roth IRA investment options
An IRA isn't an investment in itself. Rather, IRAs are the accounts that hold your chosen investments. Part of the responsibility of opening and managing a custodial Roth IRA is investing the money in different asset classes and funds. Again, this is your job as a custodian until the child is old enough to take over.
With your custodial Roth IRA, you can invest in assets such as:
- Stocks
- Bonds
- ETFs
- Mutual funds
- Money market funds
- Alternative investments and commodities(depending on factors like the brokerage)
Why you should open a Roth IRA vs. traditional IRA for kids
You can also help set your kids up for the future with a custodial traditional IRA. But the Roth version makes more sense for young people for three main reasons:
- The child will not likely earn enough to pay substantial income taxes. So, getting to deduct the contribution when you make it — one of the big advantages of the traditional IRA vs. a Roth — doesn't mean as much. With Roth IRAs, withdrawals are 100% tax-free after age 59½, when your child is likely to be in a higher tax bracket than they are now. So, most of the tax benefits tend to favor custodial Roth IRAs over traditional ones.
- Overall, Roth IRAs are more flexible. You can withdraw Roth IRA contributions (but not investment earnings) at any time, tax-free and penalty-free. That means the child could conceivably use some of the IRA money for big expenses in young adulthood, such as college costs, even if that's not the preferred route. There are also exceptions that let you use earnings, too, such as being able to withdraw up to $10,000 in earnings for a first-time home purchase if the account has been open for at least five years.
- Unlike traditional IRAs, Roth IRAs have no required minimum distributions (RMDs) when you reach a certain age. That means the account can continue to grow for an entire lifetime and possibly be used to pass more money on to heirs, making it arguably a better wealth-transfer vehicle.
Custodial IRAs vs. UTMA/UGMAs
Custodial investment accounts that fall under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA), depending on state law, are brokerage accounts for parents and others to gift money and invest on behalf of a child or minor. But unlike the funds in a custodial IRA — which are designated as retirement savings — money in a UTMA/UGMA can be used for virtually anything, including college tuition, rent, travel, and other expenses. As long as it's for the child's benefit, parents are free to use the funds, or they could leave the funds until the child takes control once they reach adulthood (18-25, depending on the state). UTMAs and UGMAs also have no income or contribution limits, aside from some potential tax implications.
A custodial IRA is the better option if you want to save for your kid's retirement. In addition to serving that purpose more directly, custodial IRAs provide better tax advantages. But you'll be limited to contributing the amount of a kid's earned income (up to $7,000 maximum in 2025), so you might end up using both.
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Custodial Roth IRA FAQs
When can funds be withdrawn from a custodial Roth IRA?
Funds can technically be withdrawn from a custodial Roth IRA at any time. However, only original contributions can be withdrawn penalty-free and tax-free for investors younger than 59½, although there are some exceptions to waive penalties. Typically, though, both contributions and earnings can be withdrawn from a custodial Roth IRA once the account owner turns 59½ and the account has been open for at least five years.
What happens to the custodial Roth IRA when the child reaches adulthood?
The child listed on the custodial Roth IRA account is given full control upon reaching adulthood, with the exact age varying by state. Parents or guardians who originally opened the account no longer have a say in how the funds are invested or managed.
Is a custodial Roth IRA worth it?
A custodial Roth IRA is worth it for many people, especially if a parent wants to help give their child a leg up on retirement. Even a few thousand dollars invested during someone's childhood can end up resulting in hundreds of thousands of dollars in tax-free retirement income.
What are the best custodial Roth IRA providers?
The best custodial Roth IRA providers are often those that have low or no investment minimums, low fees, and a wide range of investment options. Many of the same financial services companies that offer brokerage accounts and other retirement accounts also offer custodial Roth IRAs, so a parent might end up choosing a custodial Roth IRA company that they use for other financial products, but you should still compare your options to find the best Roth IRA for kids.
Can a parent contribute to a custodial Roth IRA?
Yes, a parent can contribute to a custodial Roth IRA if the child has earned income that year. The parent can contribute as much as the child earned, up to a $7,000 annual limit in 2025 across all contributions. For example, a child might contribute $3,500 and the parent might match that with a $3,500 contribution to fund the maximum in the account that year, assuming the child earned at least $7,000.
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