The Custodial Roth IRA: A Parent’s Guide to Roth IRAs for Kids

In July 2026, 36.5% of U.S. teens ages 16 to 19 were working, according to the Bureau of Labor Statistics. Every one of those paychecks does something easy to overlook: it makes the teen eligible for a Roth IRA. Money that goes in at 15 or 16 can compound for 50 years or more, and under current rules it can come out tax-free in retirement. That’s a rare combination: decades of time and tax-free growth, in an account your child owns.

Minors can’t open investment accounts on their own, so a parent or other adult opens a custodial Roth IRA and manages it until the child comes of age. This guide explains how it works in 2026: who qualifies, how much can go in, who can put the money in, what 50 years of tax-free growth can add up to, and the rules for taking money out early for college or a first home. It’s part of our section on account types, and Comparing Investment Accounts for Kids: 529 vs. UTMA vs. Roth IRA vs. 530A shows how the Roth stacks up against the other options.

What a custodial Roth IRA is

A custodial Roth IRA is an ordinary Roth individual retirement account with one difference: the owner is a minor, so an adult runs it. The custodian, usually a parent, controls contributions, investments, and withdrawals, but the child is the account’s beneficial owner, and the money must be used for the child’s benefit, Fidelity explains. Fidelity calls its version a Roth IRA for Kids. When your child reaches a certain age, typically 18 or 21 depending on your state, the assets move to a new account in their name.

Everything else follows the usual Roth rules. There’s no minimum age: anyone with taxable compensation can contribute at any age, subject to income limits a teen is unlikely to hit, according to the IRS. Contributions aren’t tax-deductible, but qualified withdrawals are tax-free, and the original owner never has to take required minimum distributions, so the money can stay invested for life.

That’s what makes the account so powerful for a child. A teenager’s dollars have more years to compound than anyone else’s, and if the withdrawals are qualified, none of that growth is ever taxed.

The earned income requirement

The one thing your child needs is earned income, which the IRS calls taxable compensation. “Generally, compensation is what you earn from working,” as IRS Publication 590-A puts it: wages, salaries, tips, and net earnings from self-employment all count. Earnings from property, such as interest and dividends, don’t. Neither does money that isn’t pay for work, like an allowance or a birthday check.

Plenty of teen jobs qualify. A job at a pool, restaurant, or store comes with a W-2. Informal work counts too: babysitting, pet sitting, and mowing lawns can all qualify a minor for Roth contributions, Fidelity notes. Self-employment brings two extra chores. Once your teen’s net self-employment earnings reach $400 in a year, they owe self-employment tax and must file Schedule SE, no matter how old they are, according to the IRS. And if your child won’t file a tax return that shows their earnings, Fidelity suggests keeping a written log of the work and the pay in case the IRS asks.

A job in the family business counts as well, as long as your child does real work for a fair wage. It even comes with a payroll break: when a child under 18 works for a parent’s sole proprietorship, or for a partnership owned only by the child’s parents, that pay isn’t subject to Social Security and Medicare taxes, according to the IRS. What Qualifies as “Earned Income” for a Minor’s Roth IRA? walks through each kind of job and the records to keep.

How much can go in: 2026 limits

For 2026, the most that can go into your child’s IRAs is $7,500 or their taxable compensation for the year, whichever is less. The dollar limit rose from $7,000 in 2025, according to IRS news release IR-2025-111, and the IRS applies it to all of a person’s traditional and Roth IRAs combined. So a 16-year-old who earns $3,200 lifeguarding can contribute up to $3,200, and one who earns $9,000 can contribute up to $7,500.

A few more rules shape the number:

• The deadline is next April. Contributions for a year can be made until the tax-filing deadline, not counting extensions, the IRS says, so contributions for 2026 can go in until April 15, 2027. That gives you time to total what your teen actually earned before you contribute.
• Income limits rarely matter. In 2026, the amount a single filer can put in a Roth IRA phases out between $153,000 and $168,000 of modified adjusted gross income, according to IR-2025-111. The test uses your child’s income, not yours, so your own earnings don’t affect your child’s eligibility.
• Going over costs 6% a year. Contributions above the limit are excess contributions. They’re taxed at 6% for every year they stay in the account unless they’re withdrawn, along with what they earned, by the tax-filing deadline including extensions, according to IRS Publication 590-A.
• Some money shares the same limit. Leftover 529 money can now be rolled into the beneficiary’s Roth IRA, up to $35,000 over a lifetime from a 529 that’s been open at least 15 years. But each year’s rollover counts toward the same $7,500 limit and needs the same earned income, according to Saving for College. The SECURE 2.0 Act: Rolling 529 Funds into a Roth IRA has the details.
• A Trump Account doesn’t. Contributions to a child’s Trump Account don’t reduce what can go into their IRAs, and they don’t require earned income, according to Iowa State University’s Center for Agricultural Law and Taxation (CALT).

Here are the main 2026 rules in one place.

Based on the IRS, including IR-2025-111 and Revenue Procedure 2025-32, plus Fidelity and Saving for College.

Who can put money in

The dollars don’t have to be the same ones your teen earned. As long as your child has enough earned income, it doesn’t matter where the contributions come from, Fidelity notes. Your teen can spend their summer pay, and you, a grandparent, or anyone else can fund the Roth contribution instead.

The limit belongs to the child, though, not to each giver. If your daughter earns $2,000 this summer and you contribute $2,000 for her, neither she nor anyone else can add more for that year, Fidelity explains.

That flexibility allows a few approaches:

• Make it a gift. Contribute up to what your teen earned as a reward for working, and let them keep their paycheck.
• Offer a match. Your teen puts in part of their pay and you match it, as long as the combined total stays within their earnings and the annual limit, an approach Fidelity describes. The “Match” Program shows how to set one up.
• Pool family gifts. Grandparents and other relatives can chip in too. In 2026, each person can give each child up to $19,000 without filing a gift tax return, under IRS Revenue Procedure 2025-32, and The Impact of the 2026 Gift Tax Exclusion explains the rules.

Whoever supplies the money, it becomes your child’s. As custodian you manage it for your child’s benefit, but it isn’t yours to take back. The Ultimate Guide to Legalities for Custodial Accounts covers a custodian’s duties.

Why the tax math favors teens

A Roth IRA trades a tax break now for tax-free money later: contributions go in after tax, and qualified withdrawals come out tax-free. For many adults, that’s a real trade-off. For most teens, the upfront cost is close to nothing.

The reason is the standard deduction. In 2026, a dependent’s standard deduction is the larger of $1,350 or their earned income plus $450, up to the $16,100 that applies to single filers, under Revenue Procedure 2025-32. So a teen whose only income is $6,000 from a summer job gets a $6,450 standard deduction and owes no federal income tax on that pay, though Social Security and Medicare taxes can still apply. With little or no tax to cut, the deduction a traditional IRA offers would be worth little to them, and because most kids earn so little, their tax rate is already low or even zero, Fidelity points out. A Roth locks in that low rate for good. By contrast, deductible contributions and earnings withdrawn from a traditional IRA are taxed when they come out, according to the IRS.

The decades in between matter too. Inside a Roth, dividends and gains aren’t taxed as they’re earned, so the full return stays invested and keeps compounding. In a taxable custodial account, investment income can be taxed every year, and a child’s investment income above $2,700 in 2026 can be taxed at the parents’ rate if theirs is higher, as Navigating the 2026 Kiddie Tax Thresholds explains.

What 50 years of tax-free growth looks like

Time does most of the work. Suppose your teen, Maya, puts $2,000 into her Roth IRA at 15, 16, 17, and 18, whether the money comes from her own paychecks, your match, or family gifts. That’s $8,000 in all, and nothing else goes in. Here’s how the balance could grow at a hypothetical 7% average annual return, the rate used across GoodNest guides.

• Contributions ($2,000 a year at 15 to 18)
• Growth

Show the numbers

Maya’s hypothetical Roth IRA balance by age

Age	Contributions	Growth	Balance
18	$8,000	$900	$8,900
25	$8,000	$6,300	$14,300
35	$8,000	$20,000	$28,000
45	$8,000	$47,200	$55,200
55	$8,000	$100,500	$108,500
65	$8,000	$205,500	$213,500

Hypothetical: a 7% average annual return, compounded annually, with $2,000 contributed on Maya’s 15th, 16th, 17th, and 18th birthdays and nothing added after. Fees aren’t included, and figures are rounded to the nearest $100. Actual returns will vary, and investments can lose value.

By 65, Maya’s $8,000 could be worth about $213,500, and about $205,500 of that, roughly 96%, would be growth. The pace picks up over time because each year’s gains start earning gains of their own. At 7%, money roughly doubles every 10 years, so the last decade alone, from 55 to 65, adds about $105,000, more growth than the first 40 years produced. And in a Roth, qualified withdrawals of the whole balance would be tax-free.

That’s why starting early matters as much as the amount. If the same $8,000 went in from ages 25 to 28 instead, it would reach only about $108,500 by 65, roughly half as much, because it gets 10 fewer years to grow. The Cost of Waiting and How Does Compound Interest Actually Work for Minors? dig into why the early years count most.

The rules for taking money out early

A Roth IRA is built for retirement, but it isn’t locked. Money comes out in a set order: regular contributions first, then any amounts converted from other retirement accounts, and earnings last, under Treasury Regulation 1.408A-6. That order matters because each layer is taxed differently.

• Contributions come out tax- and penalty-free, anytime. A Roth owner can take out all of their contributions at any time and for any reason, Fidelity notes.
• Earnings are tax-free only in a qualified distribution. That takes two things, under the same regulation. The account must be past a five-year period, and the withdrawal must be made at 59½ or later, after the owner becomes disabled, to heirs after the owner’s death, or for a first home, up to $10,000. The five years start on January 1 of the first year a contribution is made for, so if the first contribution is for the year your teen turns 15, the five years are up by January 1 of the year they turn 20.
• Other early withdrawals of earnings are taxed, and usually penalized. Before 59½, the taxable part of a withdrawal generally owes an extra 10% tax on top of income tax, unless an exception applies. The exceptions include qualified higher education expenses, up to $10,000 for a first home, and up to $5,000 for a birth or adoption, according to IRS Topic 557.

Money comes out in order: contributions, then conversions, then earnings. From 59½, earnings in an account past the five-year mark come out free of both. Separate rules cover withdrawals after disability or death. Based on Treasury Regulation 1.408A-6, IRS Topic 557, and IRS Publication 590-B.

The table shows what the rules allow, not what’s wise. Every dollar that comes out early stops compounding for good, and because new contributions are capped each year, there’s no quick way to refill the account later. Liquidating Safely covers how to sequence withdrawals when the time comes.

Using a Roth IRA for a first home

The first-home rule is the most generous way to reach Roth earnings early, and “first” is looser than it sounds. For this rule, you’re a first-time homebuyer if you, and your spouse if you’re married, haven’t owned a main home in the two years before buying, according to IRS Publication 590-B. The money has to be spent within 120 days on buying, building, or rebuilding a home, including usual closing costs, and the home can be for the account owner, a spouse, or a child, grandchild, parent, or other ancestor of either one. The $10,000 is a lifetime limit, not a yearly one.

Because contributions come out first, and tax-free anyway, the $10,000 limit only matters for earnings. That can make a teen-funded Roth a solid start on a down payment. Picture Maya at 28, buying her first home. Her $8,000 of contributions has grown to about $17,500. The $8,000 can come out tax- and penalty-free at any time, and because her account passed the five-year mark years ago, the roughly $9,500 of earnings qualifies as a first-home distribution. The whole $17,500 comes out tax-free.

The catch is what she gives up. Left alone, that same $17,500 could be worth about $213,500 at 65 under the same hypothetical return. A first home is a worthy goal, and the decision will belong to your adult child, but it helps to see both numbers before deciding. Using Custodial Funds for Life Starts covers other ways to pay for a first home.

The limit could change. A bill introduced in the Senate in September 2025 would raise it to $50,000, according to the bill’s text, but as of late September 2026 the IRS still lists the limit as $10,000.

Using a Roth IRA for college

A custodial Roth can help pay for college, but it works better as a backup than as the plan. Contributions come out first, free of tax and penalty. Earnings withdrawn for qualified higher education expenses skip the 10% penalty but are still taxed as income, since school isn’t one of the events that makes a withdrawal qualified. For the penalty exception, qualified expenses are tuition, fees, books, supplies, and equipment required for enrollment, plus room and board for students enrolled at least half-time, and they can be for the account owner, a spouse, or their children or grandchildren, according to IRS Publication 970.

Say Maya pays tuition at 20, when her Roth might hold about $10,200: $8,000 of contributions and about $2,200 of earnings. If she took it all, the $8,000 would come out tax- and penalty-free, and the $2,200 would be penalty-free but taxable. She would also have emptied an account that could have grown to about $213,500 by 65.

Financial aid adds a wrinkle. Roth IRAs, like other retirement accounts, don’t count as assets on the FAFSA, so the balance itself doesn’t reduce aid. But every dollar withdrawn from a Roth counts as untaxed income on the FAFSA, and as much as 50% of income can be treated as available to pay for college, according to Saving for College. Because the FAFSA uses income from two years earlier, a withdrawal hurts only if it falls in a year that a later FAFSA looks back to.

A 529 plan is usually the better college tool. A 529 owned by a parent counts as a parent asset at no more than 5.64%, and withdrawals used for college don’t count as income on the FAFSA, Saving for College notes. The Complete Guide to 529 College Savings Plans and How 529s and UTMAs Impact the FAFSA have the details. One way to use both: a 529 for school and a Roth for the long haul.

When your child takes control

When your child reaches the age of transfer in your state, typically 18 or 21, the custodianship ends and the assets must move to a new account in their name, Fidelity explains. From then on, it’s simply their Roth IRA. They choose the investments, can keep contributing from their own earnings, and can withdraw their contributions whenever they like. You won’t be able to stop them.

So the real safeguard is what your child understands before that day. A young adult who has watched the account grow for a few years, and who knows that at a 7% return each dollar left alone at 18 could be worth about $24 by 65, is better prepared to leave it be. Bring your teen into the account early: show them the statements, explain the choices you’re making, and let them help pick investments. What Happens at the Age of Majority? covers the legal handoff, The “Wealth Transfer” Conversation has a script for the talk, and High School (Ages 15 to 18) covers the money lessons that fit these years.

How to open and manage one

Setting up a custodial Roth IRA takes a few steps, and the ongoing work is mostly record keeping.

1. Confirm your child has earned income this year. Keep pay stubs, a W-2, or a simple log of jobs and payments.
2. Find a provider that offers custodial Roth IRAs. Not every brokerage does, so check first. Fidelity’s version is its Roth IRA for Kids. Compare fees, minimums, and fund choices.
3. Open the account as custodian. The account is in your child’s name, with you listed as custodian.
4. Contribute by the deadline. Add up to your child’s earnings for the year, or $7,500 in 2026 if that’s less, by the April tax-filing deadline.
5. Invest for the long haul. For money with decades to grow, a broad, low-cost stock index fund is a simple choice. Index Funds vs. Stock Picking for Minors explains why.
6. Keep records every year. Save proof of earnings and a running total of contributions, since contributions are the part that can always come out tax-free.
7. Plan for the handoff. Ask the provider what happens at the age of transfer and how a successor custodian is named. Naming Successor Custodians explains why every custodial account needs one.

How it compares with other accounts for kids

A custodial Roth IRA is one of four main ways to invest for a child, and each does a different job. Comparing Investment Accounts for Kids lays them out side by side. In brief:

• 529 plan. Built for education, with no earned income required. When a parent owns it, it counts lightly on the FAFSA, as noted above.
• Custodial (UTMA) account. No earned income required and flexible spending for your child’s benefit, but its investment income can be taxed each year, and on the FAFSA it counts as a student asset at up to 20%, according to Saving for College. UTMA vs. UGMA: What’s the Difference? explains how these accounts work.
• Trump Account. Open to children with no earnings at all, with up to $5,000 a year in contributions from family and others. But it’s a traditional IRA under the tax code, so its earnings are taxed when they come out, and it generally can’t pay out before January 1 of the year your child turns 18, according to CALT. The 530A Trump Account Explained has more.

Once your child has a paycheck, the Roth offers something the others can’t: growth that can come out completely tax-free, for any purpose, in retirement, in an account your child will own for life. Nothing stops you from using it alongside a 529 plan or a Trump Account.

Where family gifts fit in

Birthday and holiday money can be the fuel for a teen’s Roth IRA, as long as there’s a paycheck to match it. GoodNest helps with the giving part: loved ones can give toward your child’s future from your child’s GoodNest page, often alongside a small keepsake like a book. GoodNest doesn’t hold or invest the money. Family send gifts straight to you by Zelle, Venmo, or PayPal, and you decide where they go next: into your teen’s custodial Roth IRA, up to what they earned that year, or into a 529 plan or custodial account for a child who doesn’t have a job yet. The GoodNest Guide to Asking for Investments Instead of Toys has scripts for the conversation, and Milestone Contributions matches occasions to accounts.

The bottom line

A custodial Roth IRA can turn a teenager’s first paychecks into money that lasts a lifetime. The rules are short: your child needs earned income, contributions can’t exceed it or $7,500 in 2026, and anyone can supply the dollars. In return, the money can grow for 50 years or more and come out tax-free, with contributions available anytime and limited early access for college or a first home.

To get started:

1. Track your teen’s earnings this year, including informal jobs.
2. Open a custodial Roth IRA with a provider that offers one.
3. Decide how you’ll fund it: their pay, your match, family gifts, or a mix.
4. Contribute for 2026 by April 15, 2027, and invest for the long term.
5. Talk with your teen about what the account is for, well before it becomes theirs.

To see how a Roth fits alongside a 529 plan, a custodial account, and a Trump Account, head back to Comparing Investment Accounts for Kids.

Frequently asked questions

Can a child have a Roth IRA?

Yes, if the child has earned income for the year, such as wages from a job or net earnings from work like babysitting or mowing lawns. There’s no minimum age. Because minors can’t open accounts on their own, a parent or other adult opens a custodial Roth IRA and manages it until the child reaches the age set by state law, typically 18 or 21.

How much can I put in my child’s Roth IRA in 2026?

Up to $7,500 or your child’s earned income for 2026, whichever is less. The limit covers all of your child’s traditional and Roth IRAs combined, and all contributors together, so money from parents, grandparents, and your child counts toward the same total. Contributions for 2026 can be made until April 15, 2027.

Can parents contribute to a child’s Roth IRA?

Yes. The money doesn’t have to come from your child’s own paycheck, as long as total contributions don’t exceed what your child earned that year. Parents, grandparents, and others can fund the contribution, and some parents match part of what their teen saves. Once it’s in the account, the money belongs to your child.

Can a Roth IRA be used for college or a first home?

Yes, with limits. Contributions can come out at any time without tax or penalty. Earnings used for qualified higher education expenses avoid the 10% early withdrawal penalty but are taxed as income. For a first home, up to $10,000 of earnings over a lifetime can come out tax- and penalty-free once the account has passed the five-year mark. Keep in mind that Roth withdrawals count as income on the FAFSA and that money taken out stops growing.

What happens to a custodial Roth IRA when my child turns 18?

When your child reaches the age of transfer in your state, typically 18 or 21, the assets move to a Roth IRA in your child’s own name, and they take full control. It remains a Roth IRA, so the tax benefits continue, and your child can keep contributing from their own earnings. They can also withdraw their contributions whenever they choose, which is why it helps to talk about the account’s purpose well before the handoff.

Sources

• U.S. Bureau of Labor Statistics, “Teens ages 16 to 19 were employed at nearly half the rate of young adults ages 20 to 24 in July 2026”, The Economics Daily (August 26, 2026).
• Fidelity Investments, “Turbocharge your child’s retirement with a Roth IRA for Kids” (July 29, 2026).
• Internal Revenue Service, “Traditional and Roth IRAs”.
• Internal Revenue Service, Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs).
• Internal Revenue Service, “Self-employment tax (Social Security and Medicare taxes)”.
• Internal Revenue Service, “Family employees”.
• Internal Revenue Service, “401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500”, IR-2025-111 (November 13, 2025).
• Jeff White, Saving for College, “529 to Roth IRA: Rollover Rules, Conversion Guide, and FAQs” (updated August 6, 2026).
• Kristine A. Tidgren, Center for Agricultural Law and Taxation, Iowa State University, “Understanding Trump Accounts” (January 25, 2026).
• Internal Revenue Service, Revenue Procedure 2025-32, 2026 inflation adjustments, including the standard deduction and the annual gift tax exclusion.
• Legal Information Institute, Cornell Law School, 26 CFR § 1.408A-6, Distributions.
• Internal Revenue Service, Topic no. 557, Additional tax on early distributions from traditional and Roth IRAs (reviewed September 24, 2026).
• Internal Revenue Service, Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs).
• U.S. Congress, S. 2867, Uplifting First-Time Homebuyers Act of 2025, as introduced in the Senate (September 18, 2025).
• Internal Revenue Service, Publication 970, Tax Benefits for Education.
• Jeffrey Trull, Saving for College, “How 6 Different Assets Can Affect Your FAFSA and Financial Aid Eligibility” (updated July 15, 2026).

This article is for general educational purposes only and is not tax, legal, or investment advice. Figures reflect federal rules for 2026 as of the date above. The growth figures are hypothetical, not a prediction, and investments can lose value. Rules for custodial accounts vary by state and by provider. GoodNest does not provide tax, legal, or investment advice and does not hold or invest funds. For your family’s situation, consider consulting a tax professional or financial advisor.