Help Your Kids Get a Head Start on Saving with a Roth IRA
April 16, 2026
Presented by Duncan McCall, CFP®
Contributing to a Roth IRA is an extremely efficient way to save for retirement. The earlier contributions are
made, the more time savings have to grow tax free. Wouldn’t it be great if your children could take
advantage of a Roth IRA and start saving in their teenage years? Good news! They can. Your child may be
eligible to open a minor-owned Roth IRA to start saving for retirement, as well as other future expenses.
Minors may also be eligible to open traditional and inherited IRAs, but this article focuses only on the
benefits of a Roth IRA.
Opening a Minor-Owned Roth IRA
The registration process varies from provider to provider, but the account is typically opened as a
custodial Roth IRA. The child is the account owner, with an adult serving as the custodian. Contributions
are reported to the IRS under the minor’s social security number, but the custodian completes the new
account paperwork and is the individual authorized to act on the account. The custodian is usually (but
not always) a parent. Providers may have additional requirements if someone other than a parent serves
as the custodian.
There is no age requirement to make a Roth contribution—the same eligibility rules apply to both adults
and minors. Once the child reaches the age of majority (either 18 or 21 depending on the state), the
funds can be transferred into a Roth IRA in the adult child’s name. Subsequently, the adult child is
authorized to manage the account.
Earned Income
The minor must have earned income to make a Roth contribution. A child with a part-time job after school
or summer employment is a prime candidate.
Income Documentation
Ideally, your child’s employer will issue a W-2 for the work performed. But what if your child isn’t
employed with a company but does neighborhood work, such as mowing lawns, shoveling snow, or
babysitting? Is the money received considered earned income? The answer is, maybe. It’s up to you to
document that your child received earned income and that the amount is reasonable. For example, you
could not pay your child $1,000 for two hours’ worth of babysitting. Consultation with a tax advisor or
CPA is recommended if you’re unsure whether your child’s work can be substantiated as earned income
and if the pay is reasonable.
Funding the Roth
The total amount minors can contribute in 2026 is $7,500 or 100 percent of their earned income,
whichever is less. A commonly asked question is, must the contribution be made with the income earned
by the child, or can it be funded with a gift from a parent or family member? Either option works. Keep in
mind that the IRS imposes limits on tax-free gifts. If a minor-owned Roth IRA is funded as a gift, we
recommend consulting a tax advisor to ensure that IRS gift tax rules are followed.
Contribution Benefits
Five years after the first contribution is made to a Roth IRA, different options for withdrawing funds apply.
Retirement funding
Once the child reaches age 591/2, all funds in the Roth IRA can be withdrawn tax
and penalty free. For example, let’s assume your 15-year-old son or daughter makes a $6,000
contribution and never contributes again. Assuming a 6 percent rate of return compounded annually,
that contribution will be worth $110,520 when the child is 65 years old. That beats a normal savings
account earning minimal interest. Please note: This scenario is hypothetical, and future rates of return
can’t be predicted with certainty.
First-time home purchase
Your child can withdraw the earnings in the account tax and penalty free to
pay for costs associated with purchasing his or her first home. The amount not subject to tax and penalty
is capped at $10,000. (Consult IRS Publication 590-B for details on what expenses are deemed qualified
home acquisition costs.)
Education expenses
Earnings may be withdrawn to pay for qualified education expenses, including
college tuition, books, and supplies. Distributions of earnings will not be subject to the early-withdrawal
penalty but will be subject to ordinary income taxes. (Consult IRS Publication 590-B for details on what
expenses are deemed qualified education costs.)
Emergencies
If needed for an emergency, account contributions can be withdrawn tax and penalty free.
In this case, the five-year waiting period after the account has been opened does not apply. The child’s
contributions can be withdrawn at any time and at any age.
The Value of Saving
It’s unrealistic to expect children earning money to think about saving it for retirement rather than buying
what they want now. But providing them with a Roth IRA is a good way to instill the practice of setting
money aside for the future. Plus, if you agree to match the funds they contribute, you’ll demonstrate the
importance of putting money away for the long haul. All in all, a minor-owned Roth IRA is a great way to
teach your children the value of saving—and to get them started!
Commonwealth Financial Network® does not provide legal or tax advice. You should consult a legal or tax professional regarding
your individual situation.
