Earned Income Requirement

The minor must have legitimate earned income to contribute Common sources: babysitting, lawn care, tutoring, part-time jobs, freelance work Income from a family business counts if the work and pay are reasonable Investment income, allowances, and gifts do not qualify as earned income Keep records of work performed and income received for documentation

Annual limit is the lesser of earned income or the IRS Roth IRA cap A child who earns $3,000 can contribute up to $3,000 that year Anyone can fund the contribution — parents often match the child's earnings There is no minimum age requirement; even young children can contribute Check IRS.gov each year for the current contribution limit

A parent or legal guardian serves as custodian and makes investment decisions The custodian selects the brokerage, chooses investments, and manages the account The child's Social Security number and name are on the account Custodial control ends when the child reaches the state's age of majority At transfer, the child gains full control of the account and its investments

Same investment universe as any Roth IRA: stocks, bonds, ETFs, mutual funds Broad index funds are a popular choice for long time horizons Target-date funds offer a simple set-it-and-forget-it approach Aggressive allocations can make sense given decades until retirement

The Power of Starting Young

A 15-year-old who invests $5,000 at 8% annual growth has over $160,000 by age 65 Five years of contributions in the teens can grow to hundreds of thousands tax-free More time in the market means more compounding cycles to multiply returns Early contributions teach financial literacy and build long-term saving habits

Contributions (not earnings) can be withdrawn anytime without tax or penalty The account transfers fully to the child — they can use it however they choose No required minimum distributions during the account owner's lifetime A custodial Roth IRA does not affect the child's eligibility for financial aid Coordinate with a tax advisor to document earned income properly

Custodial Roth IRA: Retirement Savings for Minors

Curated by: Rubric Advisors

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What Is a Custodial Roth IRA?

A Roth IRA opened for a minor, managed by a parent or guardian as custodian
The child is the account owner; the custodian manages it until the age of majority
Contributions are made with after-tax dollars and grow completely tax-free
Qualified withdrawals in retirement are 100% federal income tax-free
Available at most major brokerages including Fidelity, Schwab, and Vanguard

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What Is a Custodial Roth IRA?

Earned Income Requirement

Contribution Limits

The Custodian's Role

Investment Options

The Power of Starting Young

Key Considerations

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Maximizing Your 401(k) Contributions

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What Is a Custodial Roth IRA?

Earned Income Requirement

Contribution Limits

The Custodian's Role

Investment Options

The Power of Starting Young

Key Considerations

Related Topics

457(b) Plans: Deferred Compensation for Executives

Maximizing Your 401(k) Contributions

Spousal IRA Strategies: Maximize Retirement Savings on One Income