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Custodial Roth IRA: How to Start One for Your Kids

Start your child on a path toward financial success with a Roth IRA for kids.

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By

Matt Miczulski

Edited by

Holly Jennings

Updated

Fact checked

Saving for retirement might not be top of mind for most kids, but financially savvy parents, grandparents or guardians can get the ball rolling by opening an individual retirement account (IRA) on their child’s behalf.

As long as the minor has earned income for the year, a Roth IRA is a great option to start saving for their future.

A custodial IRA allows you to open and manage the account until the child reaches adulthood, giving them a head start on tax-free growth and the power of compound interest.

Here’s how you can set up a custodial Roth IRA for your child and help secure their financial future from an early age.

What is a custodial IRA?

A custodial IRA is an IRA a parent, guardian or other adult can open and manage for a minor with earned income. The adult acts as the custodian, handling contributions and investments, but the account’s assets legally belong to the minor.

Once the child reaches the age of majority — 18 or 21, depending on the state — they take full control of the account. Despite the custodian’s management, all funds and investments in the account are solely the minor’s property.

Can I open a Roth IRA for my child?

You can open a Roth IRA for your child if they have earned income for the year and their modified adjusted gross income is below the limits set by the Internal Revenue Service (IRS).(1)

Custodial Roth IRA rules

The same rules governing regular Roth IRAs also apply to custodial Roth IRAs, with a few additional considerations since the account is held on behalf of a minor. These include:

  • The minor must have earned income for the year.
  • The child’s earned income must fall below the Roth IRA income limits set by the IRS.
  • The contribution limit for 2024 is $7,000 or the child’s total earned income — whichever is less.(2)
  • A parent, guardian or other adult acts as the custodian and manages the account until the minor reaches the age of majority.
  • Custodial Roth IRA contributions, not earnings, can be withdrawn tax-free and penalty-free at any time.(3)

How to open a custodial Roth IRA

Not all brokers offer these types of retirement accounts. Typically, only big, traditional brokers offer Roth IRAs for kids.

Additionally, you may be required to download and fill out a paper application to open an account with certain brokers. The application should only take a few minutes if you complete it online.

  • Compare and choose a broker. Compare fees, features and investment options among brokers that offer custodial Roth IRAs to find a platform that’s right for you.
  • Open an account. Provide your and your child’s name, Social Security number and birth date, as well as your contact information, employment information and bank information to fund the account.
  • Fund the account. Connect an external bank account or other deposit method to fund the account.
  • Choose investments. Choose between stocks, exchange-traded funds (ETFs) or other assets available through your broker.

Benefits of opening a Roth IRA for your child

Opening a Roth IRA for your child offers several long-term benefits that can help set them up for financial success:

  • Tax-free growth. Roth IRA contributions grow tax-free, and qualified withdrawals in retirement are not subject to taxes. Starting early allows your child’s investments to benefit from decades of tax-free growth, maximizing the power of compounding over time.
  • Maximizing compounding. Even small contributions early allow your child to take advantage of compound interest. The earlier they start investing, the longer their investments have to grow, potentially leading to significant wealth accumulation by the time they retire.
  • Long-term savings habits. Introducing a Roth IRA early encourages your child to build a lifelong habit of saving and investing, which can help them foster financial responsibility and an understanding of wealth-building strategies.
  • Withdrawal flexibility. Your child can withdraw contributions — but not earnings — at any time penalty- and tax-free, providing access to funds for major life expenses, like education or a first-time home purchase.

Bottom line

Opening a custodial Roth IRA for your child is an easy way to give them a head start on building wealth for the future. With tax-free growth, the flexibility to withdraw contributions without penalties and the power of compounding, it’s a smart long-term move that can set them up for financial success. Plus, it’s a great way to teach your child about saving and investing early on.

Ready to get started? Check out some of the best Roth IRA accounts to find the right options for you and your child.

Frequently asked questions

How do I prove my child’s income for a Roth IRA?

Hold on to documentation like pay stubs, W-2 forms or records of self-employment earnings that show the child’s total earned income for the year.

Holly Jennings's headshot
To make sure you get accurate and helpful information, this guide has been edited by Holly Jennings as part of our fact-checking process.
Matt Miczulski's headshot
Written by

Editor, Investments

Matt Miczulski is an investments editor at Finder. With over 450 bylines, Matt dissects and reviews brokers and investing platforms to expose perks and pain points, explores investment products and concepts and covers market news, making investing more accessible and helping readers to make informed financial decisions. Before joining Finder in 2021, Matt covered everything from finance news and banking to debt and travel for FinanceBuzz. His expertise and analysis on investing and other financial topics has been featured on CBS, MSN, Best Company and Consolidated Credit, among others. Matt holds a BA in history from William Paterson University. See full bio

Matt's expertise
Matt has written 208 Finder guides across topics including:
  • Trading and investing
  • Broker and trading platform reviews
  • Money management
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