Opening a Roth IRA for Your Minor Child: What You Need to Know

Roth IRA Child

It may seem premature to think about retirement for kids, though it’s a topic we do discuss with some regularity with clients, particularly when 529 planning is also a consideration. Funding a Roth IRA for minors can be an equally, if not sometimes a more compelling move for those with minor children.  However, it’s not for everyone. Below are some common questions clients ask about how Roth IRA’s for minors work and what’s entailed for opening such an account

Who opens the Roth IRA account for minors and are all children eligible for an account?

A parent is allowed to open a Roth IRA on behalf of a child only if that child has earned income. The Internal Revenue Service (IRS) defines earned income as any income received from a job or self-employment. It can include wages, salary, commissions and tips. For example, if your child works in the local supermarket part time throughout the year and receives a w-2 statement, then the child has earned income.  It’s important to note that any reportable income that’s from non-employment activities such as stock dividends, interest from an investment or bank account is not considered earned income.

Since the account is for the benefit of a minor child, the parent will be setting up a custodial account. MPPL Financial can work with you to facilitate opening such an account. 

If the parent opens the account, who is the actual account owner?

Custodial accounts, which are also used for savings allocated for a child’s education expenses, are controlled and managed by an adult., or the parent in the instance of a Roth IRA for minors. Once the child reaches adulthood (between 18 and 25 depending on the state of residence), the account is transferred to them.

What’s the maximum that can be contributed to a Roth IRA for a minor?

Minors who have a custodial IRA are limited to contributing the annual contribution limit or the total of their earned income for the year, whichever is less. The annual contribution limit is established by the IRS and adjusted regularly for inflation. The maximum contribution allowed must be the lesser of $6,500 for 2023 ($7,000 for 2024) or their total earned income for the year. It’s likely that the lesser-amount restriction is applicable for most children. For example, if your child earns $3,500 in one year from working at the local golf course or babysitting, then the most that they could contribute to a custodial Roth IRA is $3,500.

Can parents fund the account on behalf of the child?

Parents (or grandparents) can only fund the account to help a child reach their earned income limit for a Roth IRA contribution. Such contributions need to be factored in their overall annual gifting limit allowed by the IRS. We have clients who have offered a match with their kids/grandkids to get them started saving.  For instance, if child or grandchild earns $2,000 and contributes $1,000 to the Roth IRA, the client will match that $1,000, subject to the child or grandchild’s earned income, of course.

What are the advantages of opening a Roth IRA for a child?

If your child is already earning money, there are some good reasons to consider opening an IRA for the child.   For starters, time is on their side when it comes to saving. Time offers the benefit of allowing the money to grow tax free. What’s more, by adding money to a Roth IRA, instead of a traditional IRA, the child gets the benefit of tax-free distributions later in life when they are retired.

Roth IRAs also offer flexibility since original contributions can be withdrawn without triggering a tax penalty. Funds withdrawn from original contributions can be used for any purpose. For example, your teenager might seek to withdraw $6,000 from their Roth IRA towards a purchase of a car provided this amount was from original contributions. Further, once the account has been open for at least five years, your child can take out up to $10,000—without penalty and tax free—toward the purchase of a first home.

If you have a minor child that also has earned income, we encourage you to reach out to your financial advisor at MPPL Financial to discuss whether opening a Roth IRA for them is appropriate for your situation.



MPPL Financial has offices in Wausau, WI, Duluth and Grand Rapids, MN, and Crystal Lake, IL. While we’re based in the Midwest, we work with clients across the entire U.S.

Investment Advisory Services offered through Midwest Professional Planners, Ltd. (“MPPL”), 2610 Stewart Ave., Ste. 100, Wausau, WI 54401, 1-800-236-6775, an SEC-registered investment advisor. Certain representatives of MPPL are also registered representatives of, and offer securities products involving commission or transaction-based fees through APW Capital, Inc., 100 Enterprise Drive, Suite 504, Rockaway, NJ 07866, 1-800-637-3211. Member FINRA/SIPC/MSRB. MPPL is independent of APW Capital, Inc. Registration with the SEC or State Regulatory Authority does not imply a certain level of skill or expertise.