Can I Open a Roth IRA for My Child?

Yes — if your child has compensation from real work. A custodial Roth IRA (also called a Roth IRA for a minor) is owned by the child and managed temporarily by an adult. The contribution is capped at the smaller of the child's compensation or the 2026 IRA contribution limit of $7,500. The IRS imposes no minimum age. As an illustration, a one-time $5,000 contribution made at age 14 grows to about $157,600 by age 65 at a constant 7% annual return; actual returns, fees, and timing will vary.

The Earned-Income Requirement — What Counts and What Doesn't

The single hard rule: your child must have IRA compensation for the tax year, and the Roth IRA contribution cannot exceed it. W-2 wages are straightforward. Self-employment uses adjusted net earnings—not gross customer payments or the face amount of a Form 1099.

What counts as earned income:

• W-2 wages from any employer (a part-time job at a restaurant, retail, etc.).
• Adjusted net self-employment earnings from real services such as babysitting, lawn care, dog walking, tutoring, modeling, acting, or family-business work. Start with Schedule C net profit after business expenses, then apply required self-employment adjustments, including the deductible part of self-employment tax when applicable. A Form 1099 reports payments; it does not establish the IRA-compensation amount.
• Tips reported on Form 4137 or via employer.

What does NOT count:

• Allowance for chores like cleaning their own room or normal household tasks.
• Gifts and birthday/holiday money.
• Investment income (dividends, interest, capital gains).
• Inherited money or trust distributions.
• Social Security survivor benefits.

Documentation matters. For W-2 wages, keep the W-2. For self-employment, keep dates, services, customers, payments, and business expenses, then reconcile those records and any Forms 1099 to Schedule C. The 1099 is only one input; net profit and the required self-employment adjustments determine the IRA-compensation amount.

Step-by-Step: Opening a Custodial Roth IRA in 2026

1. Confirm your child has IRA compensation. A small babysitting business can support a contribution, but gross payments are not the limit. If adjusted net self-employment earnings are $200 after expenses and required adjustments, the contribution can be up to $200, subject to the shared annual IRA limit.
2. Choose a custodian. Fidelity is the most flexible (no account minimum, no fees, fractional shares supported). Schwab is comparable. Vanguard works but some mutual funds have minimums (their ETFs don't). Avoid most regional banks — their custodial Roth offerings are limited or charge fees.
3. Open the account online. The application requires the parent's SSN + driver's license/passport, the child's SSN, and the child's date of birth. Setup typically takes 10–15 minutes.
4. Fund it. The cash can come from the child, a parent, or another person. The child's IRA compensation creates the room; the contributed dollars do not have to be the same dollars the child earned. The total contribution still cannot exceed that compensation or the shared annual IRA limit.
5. Choose the holdings deliberately. A contribution may first land in a cash settlement position. Cash, bond funds, stock index funds, and target-date funds have different risks, expected returns, and fees. Choose an allocation that fits the child's horizon and risk tolerance; no investment return is guaranteed.
6. Handle reporting correctly. The child files Form 1040 only when a filing requirement applies or when filing is useful, such as to claim a refund of withholding. Net self-employment earnings of $400 or more generally trigger a return. A regular Roth contribution is not deducted or claimed on Form 1040; the IRA trustee files Form 5498, using box 10 for the child's Roth contribution. Keep the child's work and contribution records.

The Long-Term Math — What Extra Years Can Do

The reason custodial Roth IRAs matter so much isn't the immediate tax savings (a child likely owes no income tax anyway). It's compound growth over an extra decade-plus of runway.

Imagine three siblings: Alex starts at 14, Blair at 25, and Casey at 35. Each makes a single $5,000 Roth IRA contribution and never touches it again. They all earn 7% real returns through age 65.

Under this constant-return illustration, Alex ends with about 4.1 times Casey's balance and about 2.1 times Blair's balance from the same $5,000 contribution. The difference is time, not a guarantee of market performance.

In a constant-dollar illustration, if a child had enough compensation to support eight $7,500 year-end contributions from ages 14 through 21, the same 7% assumption reaches about $1.51 million at age 65. That holds the annual contribution amount flat, assumes uninterrupted compounding and no withdrawals, and uses a return that may not occur. Use the Growth Projection tool to model different assumptions.

Common Mistakes to Avoid

• Counting allowance as earned income. The IRS will not accept allowance for chores as a basis for Roth contributions. The work must look like real work — services rendered to a third party (or to a family business with arms-length terms).
• Skipping the documentation. For self-employment, keep work, payment, and expense records and reconcile them to Schedule C. Keep any Forms 1099, but do not use a 1099 gross amount as the contribution ceiling.
• Assuming the contribution invests itself. Check whether it is in a settlement position, then make a deliberate allocation choice. Cash and market investments serve different purposes, and an index fund can lose value; neither a yield nor a return is guaranteed.
• Assuming one handoff age applies everywhere. The child owns the IRA, but the provider's agreement and applicable state law govern when the adult custodian's authority ends and what paperwork is required. Ask the provider before opening the account and discuss the transition with the child.
• Treating it as a college fund. Roth IRAs allow tax/penalty-free withdrawal of contributions at any time (per IRC §408A(d)(4)), so they technically can be used for college — but that defeats the long-term purpose. A 529 is the better college vehicle; the Roth IRA should stay invested for retirement.

Family Match Strategy — Funding Without Touching the Child's Own Earnings

A family can let the child keep their paycheck or business cash while a parent or grandparent supplies the Roth contribution dollars. What creates the room is the child's IRA compensation—not the source of the cash deposited.

For self-employment, document adjusted net earnings rather than matching gross receipts or a Form 1099 amount. The family-funded contribution still cannot exceed the child's compensation or the shared annual IRA limit.