Roth IRA for Kids: How Early Contributions Can Grow to $1M+

The Math That Changes Everything

Compound interest is powerful. But compound interest over 50+ years? That's life-changing.

Here's what happens when you start early:

Notice something remarkable: the child who contributes $40,000 total (age 10-18) ends up with more than the adult who contributes $215,000 total (age 22-65).

Time is the biggest lever here. Starting years earlier can mean hundreds of thousands more at retirement in these projections. Actual returns, fees, and timing vary, and returns are not guaranteed. See your child's numbers with our Roth IRA Calculator.

The Catch: Your Child Needs Earned Income

Here's where most families get stuck. To contribute to a Roth IRA, your child must have earned income.

What counts as earned income:

• Wages from employment (W-2)
• Self-employment income (1099)
• Babysitting, lawn mowing, and other work for neighbors
• Work for a family business
• Qualifying household employment, when the payments are eligible compensation

What does NOT count:

• Allowance (unless tied to specific work)
• Investment income (dividends, interest)
• Gifts from relatives
• Birthday money

The contribution limit: The limit is generally the lesser of $7,500 (2026) or eligible compensation, with other IRA rules potentially applying. Confirm which payments qualify.

Solution: Hire Your Kids

The most reliable way to create earned income for your child is to pay them for real work.

A child with legitimate taxable compensation may be eligible for a custodial Roth IRA. Depending on the facts and applicable law, paid work may include:

• Household work: Cleaning, yard work, organizing, pet care
• Business work: Filing, data entry, social media, photography

The key requirements:

1. The work must be real and actually performed
2. The pay must be reasonable for the work done
3. You must have proper documentation (employment agreement, work logs, payment records)

Learn more: How to Hire Your Kids: The Complete Guide

How to Open a Custodial Roth IRA

A custodial Roth IRA is a Roth IRA opened in a child's name, managed by a parent until the child turns 18 (or 21 in some states).

Step 1: Choose a Brokerage

These brokerages offer custodial Roth IRAs with no minimums and no fees:

• Fidelity: No minimums, excellent index funds
• Charles Schwab: No minimums, good customer service
• Vanguard: Requires $1,000 minimum for some funds

Step 2: Gather Required Information

You'll need:

• Child's Social Security Number
• Child's date of birth
• Parent's information (as custodian)
• Source of earned income documentation

Step 3: Open the Account

The process typically takes 15-30 minutes online. The parent opens the account as custodian, and the child is the account owner.

Step 4: Fund and Invest

Confirm the contribution ceiling before funding. Investment selection depends on risk tolerance, fees, time horizon, and other circumstances; consider guidance from a qualified financial professional.

Contribution Limits and Rules

Important: The contribution doesn't have to come from the child's own money. You can pay your child, then contribute that same amount to their Roth IRA from your own funds. The contribution still cannot exceed the child's eligible limit, and other IRA rules may apply.

Roth IRA vs. 529 Plan: Which Is Better?

Both are tax-advantaged accounts for your child's future. Here's how they compare:

Our take: The Roth IRA is more flexible. If your child doesn't go to college, the money is still there for retirement, a first home, or emergencies. A 529 that isn't used for education faces penalties (though recent laws allow rolling some into a Roth IRA).

The Documentation Connection

Here's the challenge: if the IRS questions your child's Roth IRA contribution, you need to prove they had earned income.

This means you need:

• Employment agreement: Proof of the employment relationship
• Work logs with timestamps: Proof the work actually happened
• Payment records: Proof you paid them
• Required payroll/tax forms: Determined by the employment context, wages, and withholding

Timely records are generally more credible than a year-end reconstruction. The complete record set depends on the work, employer, payroll duties, and contribution facts.

This is exactly what employkids provides: server-timestamped work logs, generated employment agreements, and an organized year-end record packet.

Frequently Asked Questions

Is there a minimum age for a Roth IRA?

Age alone does not bar a contribution. The child needs eligible compensation and must satisfy the other IRA rules.

How much can a child contribute to a Roth IRA in 2026?

Generally the lesser of $7,500 or eligible compensation, with other IRA rules potentially applying.

Can grandparents contribute to a child's Roth IRA?

A parent or grandparent can generally supply the funds, but total contributions cannot exceed the child's applicable limit and eligible compensation. Gift and IRA rules should be reviewed.

What happens to the Roth IRA when my child turns 18?

The custodian must transfer control at the age required by the custodial account agreement and applicable state law, which may be 18, 21, or another permitted age. Ask the financial institution.

Can my child withdraw from their Roth IRA?

Contributions can be withdrawn at any time, tax-free and penalty-free.Earnings withdrawn before age 59½ may be subject to taxes and a 10% penalty (with some exceptions like first home purchase or education).

Sources

• IRS Publication 590-A: Contributions to Individual Retirement Arrangements
• IRS Publication 590-B: Distributions from Individual Retirement Arrangements
• IRS Retirement Topics: IRA Contribution Limits