A Roth IRA is not just for adults. If your child has earned income from a job or self-employment, they can contribute to a custodial Roth IRA. You manage it until they are an adult.
Contributions are after-tax, but decades of tax-free growth can turn a part-time job into serious retirement wealth. The hardest part is proving earned income and staying within annual limits.
The earned income rule
The child must have earned income in the tax year: wages on a W-2, documented self-employment (babysitting, lawn care, etc.), or net earnings from a small business. Allowance for regular chores usually does not count.
Contributions for a given year cannot exceed the child's earned income, up to the annual IRS limit ($7,000 in 2026 for most people under 50). If they earn $2,500 from a summer job, $2,500 is the max Roth contribution for that year.
The money can come from the child's paycheck or from you, as long as total contributions do not exceed their earned income. Many parents match what the teen saves from work.
How to open a custodial Roth IRA
Major brokerages offer custodial Roth IRAs with the same low-cost index funds as adult accounts. You will need the child's Social Security number and your information as custodian.
Keep records: pay stubs, invoices, or a simple log for informal work. If the IRS asks, you want proof the income was real.
File a tax return for the child if required (often when W-2 wages exceed the standard deduction). Even when not required, a return can document income for Roth purposes. Ask a tax preparer for your situation.
Why Roth beats traditional for most teens
Teens are usually in a low tax bracket now. A traditional IRA deduction saves little tax today, while a Roth builds tax-free money for retirement when rates may be higher.
Roth IRA contributions (not earnings) can be withdrawn anytime without penalty, which adds flexibility for a first home or emergency. Earnings withdrawn early may face taxes and penalties with exceptions.
Time matters most. $3,000 contributed at age 16 and left to grow for 50 years at 7% becomes roughly $90,000, with no tax on qualified retirement withdrawals. Run your own numbers in the compound growth calculator.
What to invest in
A total stock market index fund or target-date fund far in the future is a common choice. Avoid speculative picks that turn the account into a gambling lesson.
Rebalance and discuss annually. As the balance grows, the account becomes a real asset, not a spreadsheet exercise.
Common mistakes
Contributing more than earned income for the year. The IRS limits are strict.
Assuming gift money or allowance qualifies without earned income.
Cashing out when the child turns 18 without a plan. Talk about the purpose years before they take control.
Skipping retirement savings for yourself to fund a child's Roth. Secure your own IRA and 401(k) first.
Next steps
When your teen lands their first job, read the first paycheck guide together, pick a contribution amount, and open the custodial Roth before the tax year ends. Pair it with everyday banking using the kids savings account guide.