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Custodial Roth IRA: How And Why To Start A Roth IRA For Kids


With a custodial Roth IRA, you can help your child start saving for retirement as soon as they begin earning income. Because contributions to Roth IRAs are made with after-tax money and can be withdrawn at any time, these accounts are a great option to set your child up for long-term financial success.

What is a custodial Roth IRA?

A custodial IRA allows the account holder (in this case, your child) to contribute after-tax dollars toward retirement. For the most part, a custodial Roth IRA operates in the same way as a regular Roth IRA.

There is one main difference between these two types of accounts: Because custodial Roth IRAs involve minors, they need to have a parent (or another adult) assigned as a custodian.

The rules for custodial Roth IRAs

If you’re familiar with how Roth IRAs work, then you already understand the basic rules of custodial Roth IRAs. But there are also some specific rules that apply to accounts for underage children. Here’s what you should know.


To be eligible for a custodial Roth IRA, your child needs to earn income. It doesn’t matter if they’re working for an employer or providing services like babysitting. As long as the child is making money (and paying taxes on it), they can contribute to a custodial Roth IRA.

Contribution limits

For 2021, the contribution limit for custodial Roth IRAs is $6,000 or the total amount of money that your child made during the year (whichever is less). If, for example, your daughter made $4,000 as a lifeguard, she could contribute up to $4,000 to her custodial Roth IRA this year.

Tax implications

Custodial Roth IRAs are funded with your child’s post-tax dollars. When they’re ready to withdraw the money for retirement, they won’t need to pay income tax on it (unlike traditional IRAs).

Switching to a traditional Roth IRA

While your child is still under age 18, you will manage all of the assets in the account. But when your child reaches the legal age in your state (usually 18 or 21), their custodial Roth IRA will need to be converted to a regular Roth IRA in their name. Before this happens, make sure that your child understands what’s happening and knows how to keep making contributions to their account.


Ideally, your child won’t need to make any withdrawals from their account until they reach retirement age. But even if they decide to take out some money before then, they won’t face any penalties for withdrawing their contributions. Taxes and penalties, however, may apply if they tap into their earnings before they retire.

Types of IRAs for kids

There are other options to consider for kids than Roth IRAs. You could, for example, choose to open a traditional IRA for your child. In that case, all of the contributions and earnings in the account would be made with pretax dollars. As a result, your child would need to pay taxes when they withdraw money from the account in retirement.

That said, it’s hard to justify choosing a traditional IRA over a Roth IRA for children. That’s because traditional IRAs are designed for people in higher tax brackets, offering advantageous tax deductions upfront. In nearly every case, this doesn’t apply to kids, who usually only earn small amounts of money from their jobs.

How to open a Roth IRA for your kids

Ready to open a custodial Roth IRA? Your first step is choosing a provider. There are a handful of financial institutions that offer these types of accounts, including Fidelity and Charles Schwab. Take some time to research their offerings and find the best Roth IRA for your needs.

After you’ve picked a firm, it only takes a few minutes to open your account online. You’ll need to provide some basic information about yourself and your child, including Social Security numbers, employment details, annual income and banking information.

Once your account is set up, work with your child to determine how much they’ll contribute and how often. You can “match” your child’s contributions (as long as your combined contributions don’t exceed how much money they earned that year).

The benefits of opening a Roth IRA for your kids

To review, here are some of the great perks that these accounts offer for kids:

  • Custodial Roth IRAs will grow your children’s money for decades: By contributing to their retirement savings early on, your child will benefit from decades of tax-free, compounding growth. Eventually, they’ll end up with a comfortable nest egg to support them after they stop working.
  • They teach your children how to save for retirement: Unfortunately, many people don’t recognize the importance of retirement planning until they’re well into adulthood. With a custodial Roth IRA, you can help your kids establish good financial habits from a young age.
  • The accounts can be used for other important life events as well: Ultimately, Roth IRAs are designed for retirement saving. But your child can also withdraw money, penalty-free, for other purposes, including emergencies, college expenses and buying a home.
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