Custodial Roth IRA

What It Means

A custodial Roth IRARoth IRAAn individual retirement account funded with after-tax money, where qualified withdrawals, earnings included, come out tax-free. See more is a Roth IRA that belongs to a minor but is opened and run by an adult custodian, usually a parent or grandparent. The child must have earned income, and contributions for the year can't exceed that income or the annual IRATraditional IRAAn individual retirement account where contributions may be tax-deductible, growth is tax-deferred, and withdrawals are taxed as income. See more limit, whichever is less. When the child reaches the age of majority under state law and the account agreement, the account moves into their own name.

How People Say It

• "She earned $3,000 babysitting, so we matched it into her Roth."
• "We opened a Roth IRA for him with his summer job money."
• "It's his account, but I manage it until he's 18."

The Breakdown

Worked example. Maya, 15, earns $3,000 babysitting and lifeguarding in 2026. Her parents would like to put $5,000 into a custodial Roth IRA for her.

What the result means. Maya can't receive more than she earned, even though the IRS limit is higher. The money doesn't have to be hers: her parents can put in the $3,000 as a gift and let her keep her pay, since Fidelity and Schwab both say anyone can contribute as long as the child has the earned income to support it.

Why start young. Money in a Roth IRA grows without yearly tax, and qualified withdrawals in retirement come out tax-free, so decades of possible growth sit inside the account. Returns aren't guaranteed, and the usual Roth rules on withdrawals apply.

Good to Know

Earned income means pay for work, such as a W-2 job or self-employment like babysitting or mowing lawns, according to Fidelity and Schwab; allowanceAllowanceA set amount of money a child gets on a regular schedule to manage, often with an agreement about what it has to cover. See more, gifts and investment income don't count. The custodian manages the account until the child reaches the age of majority set by state law and the account agreement, commonly 18 or 21, and then it moves into a Roth IRA in the child's own name. Keep a simple record of what the child earned and from whom, since the contribution depends on it, and ask a tax professional if the child's income is from self-employment.

Related Terms and Categories

• Roth IRA

  An individual retirement account funded with after-tax money, where qualified withdrawals, earnings included, come out tax-free.

• Custodial account

  An account an adult manages for a minor, usually under state UGMA or UTMA law, where the money legally belongs to the child from the day it goes in.

• Compound interest

  Interest paid on your original amount and on the interest it has already earned, so each year's interest is a little bigger than the last.

• Kids savings account

  A bank or credit union savings account opened for a child, usually jointly with a parent or as a custodial account, where the child's money earns interest.

• Generational wealth

  Money, property and other assets passed from one generation of a family to the next, through inheritances, gifts during life or help such as paying for school.

• Contribution limit

  The most the IRS lets you put into a tax-advantaged account in a year, such as a 401(k), IRA or HSA, often with a higher catch-up amount at older ages.

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