Custodial Roth IRA: How a Roth IRA for Kids Works (2026 Rules)
Figures checked October 27, 2026 against primary sources
A teenager with a summer job has something most adults would love to have: decades of time and a tax rate close to zero. A custodial Roth IRA puts the two together. This guide covers the IRS rules that decide who can have one and how much can go in, what counts as a kid's earned income, how withdrawals and financial aid work, and how it stacks up against the other accounts parents use for children.
The Short Answer
- The child needs earned income. Wages or self-employment pay count. Allowance, gifts, interest and dividends do not.
- 2026 limit: the lesser of $7,500 or the child's taxable compensation for the year. A teen who earns $3,000 can have at most $3,000 put in.
- A parent or grandparent can supply the money, as long as the total stays within what the child earned.
- The account belongs to the child. An adult custodian runs it until the child reaches the age set by state law, usually 18 or 21.
- Contributions can come back out at any time without tax or penalty. Earnings are tax-free only after the 5-year rule and age 59½ (or another qualifying reason) are met.
- FAFSA does not count the balance as an asset, but withdrawals show up as income.
What a Custodial Roth IRA Is
The tax code has no special "kids' Roth." A custodial Roth IRA is an ordinary Roth IRA opened for someone who is too young to sign a brokerage contract alone. IRS Publication 590-A says Roth contributions can be made "regardless of your age," so the only real entry test is earned income.
Because a minor can't manage the account, an adult (usually a parent) opens it as custodian. The custodian picks the investments and approves any withdrawal, but the money is the child's from the first deposit. It can't be moved into the parent's own account or taken back. When the child reaches the age of majority, which depends on state law, control passes to them. Brokers describe that age as 18 to 21 in most states, and some note that a few states allow up to 25.
Everything else follows the normal Roth IRA rules: no tax deduction going in, tax-free growth, and tax-free qualified withdrawals later. For the full adult rules, including the income limits that do not affect most teens, see our Roth IRA contribution limits guide.
2026 Contribution Limit
For 2026 the IRS caps total contributions to all of a person's traditional and Roth IRAs at $7,500, or the person's taxable compensation for the year if that is less (IRS Notice 2025-67). For a child, the second part is the one that usually binds.
| Child's 2026 earned income | Most that can go into the Roth IRA for 2026 |
|---|---|
| $0 | $0 |
| $1,200 | $1,200 |
| $4,800 | $4,800 |
| $7,500 or more | $7,500 |
Three timing points:
- Deadline: contributions for a year can be made until the tax-return due date for that year, not counting extensions. For 2026, that is the April 2027 filing deadline.
- Who pays: the IRS limit is measured against the child's compensation, not against whose bank account the deposit comes from. A parent can match a teen's paycheck dollar for dollar, or fund the whole amount while the teen spends their wages. Fidelity's product page, for example, describes the parent making the contribution up to the child's earnings.
- Too much in: any amount over the limit is an excess contribution, and the IRS charges a 6% excise tax on it for every year it stays in the account. Withdrawing the excess and what it earned by the tax-return due date, including extensions, avoids it.
A gift from a parent or grandparent into the child's Roth also counts toward the giver's gift tax annual exclusion, which is $19,000 per recipient for 2026. A Roth contribution can't exceed $7,500 this year, so it fits inside that on its own; it only matters if the same giver also makes other large gifts to the child. Our gift tax guide covers the details.
What Counts as Earned Income for a Minor
The IRS word is "compensation," and Publication 590-A defines it as pay for personal services. For teenagers that means two kinds of income.
Wages from a job. Pay shown in box 1 of a Form W-2, plus tips, from a grocery store, restaurant, summer camp, pool or any other employer.
Self-employment income. Babysitting, lawn mowing, pet sitting, tutoring, selling crafts they make. For a self-employed person, compensation is the net profit after business expenses, reduced by the deductible half of self-employment tax. A teen who earns $2,000 mowing lawns and spends $300 on gas and a trimmer has $1,700 of net earnings to start from.
Not compensation: allowance, birthday money, interest, dividends, capital gains, or any income from property. Pay for chores at home is a gray area: it works as earned income only if it is real work done at fair pay, not a renamed allowance. When in doubt, ask a tax professional before contributing.
Does the child have to file a tax return?
Often not, but self-employment changes that. Two rules from the IRS:
- The $400 rule. Anyone, at any age, with net self-employment earnings of $400 or more must file a return and pay self-employment tax on Schedule SE. The tax is 15.3% (12.4% Social Security, 2.9% Medicare). A babysitter who nets $1,700 owes it, even though they owe no income tax. Our self-employment tax guide walks through the form.
- Wage-only teens. A single dependent with only wages had to file a 2025 return only if earned income was more than $15,750 (IRS Publication 501, 2025 table; the IRS had not published the 2026 version when we checked). Unearned income over $1,350 also triggers a 2025 return. Filing can still make sense below that line to get back withheld tax.
You don't need a tax return to prove a Roth contribution was allowed, but the income has to be real and reportable. If the teen was required to file and didn't, the contribution is built on income the IRS never saw.
Paying Your Child in a Family Business
Parents who own a business can hire their own children, and the payroll tax rules are friendlier when the business is set up the right way. From the IRS family employees page and Publication 15:
| How the business is organized | Social Security and Medicare on the child's pay | Federal unemployment (FUTA) | Income tax withholding |
|---|---|---|---|
| Sole proprietorship, or a partnership where every partner is the child's parent | Not due while the child is under 18 | Not due while the child is under 21 | Applies at any age |
| Corporation, or a partnership with a non-parent partner | Due at any age | Due at any age | Applies at any age |
Either way, the pay is wages, so it counts as compensation for the IRA. The work has to be real: tasks a business would pay someone to do, at a rate it would pay a stranger, with hours you can document. Paying a 7-year-old $7,500 to "help with marketing" invites trouble in an audit. The Publication 15 family employees section also explains the rules for domestic work in your home, which follow different ages.
Records to Keep
The weak spot in most kids' Roth IRAs is proof of income, especially cash work. Keep these with the account records for as long as the money is in it:
- W-2s and pay stubs for any job.
- A work log for self-employment: date, customer, job, amount paid, and how it was paid. Payment-app records or a copy of a check help.
- Expense receipts for self-employment, since only net earnings count.
- Tax returns and Schedule SE, when one was filed.
- For a family business: timesheets, a job description, the pay rate and why it is reasonable, and payroll records.
- Contribution records: the year each deposit was made for, and the total. You will need the contribution total later, because that amount can come out tax-free.
Withdrawal Rules
Roth withdrawals are taken in a fixed order (IRS Publication 590-B): the child's regular contributions come out first, then earnings. That order is what makes a custodial Roth more flexible than it looks.
- Contributions: can be withdrawn at any time, at any age, with no tax and no penalty.
- Earnings, qualified: tax-free if the account has passed the 5-year period (counted from January 1 of the first year a contribution was made for) and the owner is 59½, disabled, has died, or uses up to $10,000 (lifetime) for a first home.
- Earnings, not qualified: taxed as income, plus a 10% additional tax unless an exception applies.
Two exceptions matter most for young adults, and they work differently:
| Use | 10% additional tax on earnings | Income tax on earnings |
|---|---|---|
| First home, up to $10,000 lifetime, account past 5 years | No | No (a qualified distribution) |
| First home, up to $10,000 lifetime, account under 5 years | No | Yes |
| College tuition, fees, books, supplies and required equipment | No | Yes |
The first-home money must be spent within 120 days, and the buyer must not have owned a main home in the previous two years. For college, the education exception only removes the 10% penalty. Taking out contributions first, which are always tax-free, usually covers a lot before any earnings are touched.
Effect on Financial Aid
The FAFSA treats retirement accounts kindly while they sit still. The 2027-28 FAFSA tells families not to include "non-education IRAs" in investments, and the Department of Education's handbook says the value of retirement plans "is not counted as an asset, but distributions do count as income."
That second half is the trap. The FAFSA asks for tax information from two years earlier (the 2027-28 form uses 2025 returns) and adds untaxed IRA distributions to the student's income. So a Roth withdrawal taken in a student's freshman year can lower their aid two years later, even when the money came out tax-free. Families who plan to use a Roth for school often wait until the last aid year has been reported. Deadlines for filing are on our FAFSA deadline page.
Compare: money in a UTMA/UGMA account counts as the student's asset on the FAFSA, and a parent-owned 529 counts as a parent asset for a dependent student.
Example: $2,000 a Year From 15 to 18
Hypothetical example, not a forecast. A teen earns at least $2,000 a year from a summer job, and $2,000 goes into a custodial Roth IRA at the start of each year at ages 15, 16, 17 and 18: $8,000 in total. Nothing else is added. We grow each deposit at a fixed yearly return until age 65 and ignore fees. Results are in future dollars, not adjusted for inflation.
| Assumed yearly return | Balance at 65 | Times the $8,000 put in | Same $8,000 put in at ages 30 to 33 instead |
|---|---|---|---|
| 5% | about $85,400 | 10.7x | about $41,100 |
| 7% | about $213,500 | 26.7x | about $77,400 |
The math: each deposit is multiplied by (1 + return) raised to the number of years until 65. The age-15 deposit grows for 50 years, the age-18 deposit for 47. At 7%, the first $2,000 alone becomes about $58,900. Starting 15 years later with the same money ends up with roughly a third to a half as much, which is the whole case for these accounts. Under the Roth rules, the full balance can come out tax-free after 59½. Try your own numbers in the Roth IRA calculator or the compound interest calculator.
Custodial Roth vs 529 vs UTMA vs Trump Account
| Custodial Roth IRA | 529 plan | UTMA/UGMA | Trump account | |
|---|---|---|---|---|
| Child needs earned income? | Yes | No | No | No |
| 2026 yearly limit | Lesser of $7,500 or the child's earned income | No federal yearly limit; plan sets a total cap | None (gift tax rules apply) | $5,000 from family and employers combined |
| Tax on growth | None while invested | None while invested | Taxed yearly to the child; kiddie tax may apply | Deferred |
| Tax at withdrawal | Contributions free anytime; earnings tax-free if qualified | Tax-free for qualified education costs | Capital gains on sales | Earnings taxed as income, like a traditional IRA |
| Who controls it | Custodian, then the child at the state's age | Account owner (often the parent) | Custodian, then the child at the state's age | No withdrawals before the year the child turns 18 |
| FAFSA | Not an asset; withdrawals count as income | Parent asset (dependent student) | Student asset | No Education Department guidance found |
| Free money | None | None from the federal government | None | $1,000 seed for eligible 2025-2028 births |
They are not either-or. A typical order: claim the Trump account seed if your child qualifies, because it is free. Put college money in a 529. Once the teen has a paycheck, the custodial Roth is the best home for long-term money, because no other account here offers tax-free growth and tax-free withdrawal of contributions at any time. A UTMA is the most flexible but has the weakest tax and financial-aid treatment.
Where to Open One
Not every broker offers IRAs for minors. These four describe the product on their own sites (read on 2026-10-27; check the current terms before you open one):
- Fidelity (Roth IRA for Kids): for children under 18 with earned income; lists $0 account fees and a $0 minimum. The custodian handles trades and withdrawals; the child can view the account from 18.
- Charles Schwab (Custodial IRA): Roth or traditional; $0 minimum deposit; custodian control until 18, or 25 in some states.
- E*TRADE (IRA for Minors): Roth or traditional, under 18 with earned income, no annual IRA fee or minimum, one guardian per account. Its page still showed the 2025 limit when we read it.
- Vanguard (Custodial IRA): Roth or traditional; custodian manages until the age of majority (18 to 21 by state); says self-employment income needs to be documented.
Vanguard, for example, asks for the child's Social Security number and date of birth along with the custodian's own account. Then pick low-cost, diversified funds: a 50-year time horizon is exactly when broad stock index funds make the most sense.
FAQ
How much can I put in a custodial Roth IRA in 2026?
The lesser of $7,500 or the child's taxable compensation for 2026. If your child earned $2,500, the most anyone can contribute for that year is $2,500.
Can I open a Roth IRA for my child if they don't have a job?
You can't fund one without earned income. For a child with no earnings, look at a 529, a UTMA/UGMA account or a Trump account, none of which require the child to work.
Can parents contribute to a child's Roth IRA?
Yes. The money can come from a parent, grandparent or anyone else, as long as total contributions for the year do not exceed the child's earned income or $7,500.
Does babysitting money count for a Roth IRA?
Yes, if it is real pay for work. It is self-employment income, so keep a log of jobs and payments. If net earnings reach $400 in a year, the child must file a return and pay self-employment tax.
What happens when my child turns 18?
When your child reaches the age of majority set by your state (often 18 or 21), you hand over control. Brokers usually do this by moving the money into a regular Roth IRA in the young adult's name.
Can my child use their Roth IRA for college?
Contributions can come out tax-free at any time. Earnings used for qualified college costs avoid the 10% penalty but are still taxed. Any withdrawal also counts as income on the FAFSA two years later.
Is there a custodial Roth IRA calculator?
A kids' Roth IRA grows the same way as an adult's, so our Roth IRA calculator works: enter the child's age, the yearly amount and your assumed return.
This article is for general information and is not tax, legal or financial advice. IRA limits and rules are from IRS Notice 2025-67, the IRS IRA contribution limits page, and Publications 590-A, 590-B, 501, 15 and 970; payroll rules from the IRS family employees page; financial-aid treatment from the 2027-28 FAFSA form and the 2026-27 Federal Student Aid Handbook; broker details from each broker's own page; all read on 2026-10-27. Trump account facts are from our Trump accounts guide and its sources. The growth example is hypothetical; returns are assumptions, not predictions. Age-of-majority rules vary by state.
