Custodial Roth IRA For Kids: How It Works & Eligibility

Helping a child open a retirement account might sound unusual but it’s entirely possible with a custodial Roth IRA—and in many cases, starting early can make a big difference. With just a few working years as a teen, a child can gain a head start on long-term savings that may benefit them for decades.

A custodial Roth IRA is a retirement account opened and managed by an adult, typically a parent or guardian, on behalf of a minor. As long as the child has earned income, they may be eligible to contribute. Because Roth IRAs offer tax-free qualified withdrawals and no lifetime required minimum distributions (RMDs), they’re often considered a flexible option for young savers.

In this article, we’ll break down how custodial Roth IRAs work, who qualifies, and why they might be worth considering for a child with part-time income.

How Does a Custodial Roth IRA Work?

A custodial Roth IRA is managed by an adult, usually a parent or guardian, until the child reaches the legal age of majority. This is typically age 18 or 21, depending on your state.

As the custodian, you’re responsible for all investment decisions and contributions. You also maintain control over the account, including choosing how the funds are invested. However, once your child reaches the age of majority, that control shifts entirely to them.

At that point, the account officially becomes theirs. They can continue contributing, adjust the investments, or even withdraw funds—though early withdrawals of earnings may be subject to taxes and penalties.

📝 Note: Custodial Roth IRA accounts are irrevocable. Once opened, the funds legally belong to the child, even if the adult manages them in the meantime.

Is My Child Eligible for a Custodial Roth IRA?

✅ There’s no minimum age to qualify. As long as a child has earned income and a custodian is willing to open the account, they may be eligible to contribute.

Earned income refers to money received through actual work—such as:

❌ What doesn’t count? Money from allowances, household chores, or gifts is not considered earned income. The work must be real and the income must be reported for tax purposes.

📝 Reminder: Contributions for 2025 are limited to $7,000 or up to 100 percent of earned income, whichever is less.

Two Types of Custodial IRAs

There are two types of custodial IRAs that a parent or guardian can open for a child: a custodial traditional IRA and a custodial Roth IRA. Both are designed to help kids start saving early, but they work differently when it comes to taxes.

✅ Custodial Traditional IRA

A traditional IRA uses pre-tax dollars if the contributor qualifies for a deduction. Earnings grow tax-deferred, meaning taxes are only paid later, typically during retirement. When the account holder eventually withdraws funds, those withdrawals are taxed as ordinary income. Also, required minimum distributions (RMDs) must begin at age 73.

✅ Custodial Roth IRA

A Roth IRA is funded with after-tax dollars, so there’s no upfront tax break. However, earnings may grow tax-free, and qualified withdrawals in retirement are also tax-free. Roth IRAs don’t have lifetime RMDs, giving account holders more flexibility over how and when they use their money.

📝 Update for 2025: Roth 401k accounts are now also exempt from lifetime RMDs, thanks to SECURE 2.0. Roth IRAs are no longer the only RMD-free option.

Custodial Roth IRA vs Custodial Traditional IRA

A common trade-off with Roth IRAs is that contributions aren’t deductible. But for minors, this usually doesn’t matter. Most kids don’t earn enough to owe taxes, so missing a deduction has little to no effect.

In contrast, the long-term benefits of a Roth IRA could be significant. Since qualified withdrawals in retirement are tax-free, even small contributions made early on may grow into meaningful dollars over time.

✏️ Hypothetical Example: If a 15-year-old contributes $1,000 to a Roth IRA and leaves it untouched, that investment could potentially grow into $1 million by retirement. If all withdrawal conditions are met—including the five-year rule and reaching age 59½—they could withdraw the entire balance tax-free.

For minors with little or no tax liability, a Roth IRA is generally the more appealing option. It prioritizes tax-free growth over upfront deductions they likely wouldn’t use anyway.

Best Features of a Custodial Roth IRA

A Roth IRA offers flexibility that most retirement accounts don’t. For minors just starting to save, this type of account could provide long-term tax advantages and more control over their money. Here are some of the standout features:

✅ Tax-Free Withdrawals in Retirement

Qualified withdrawals from a Roth IRA are completely tax-free. This includes both your original contributions and any earnings, as long as the account has been open for at least five years and the account holder is age 59½ or older.

This can be especially helpful for young contributors. The earlier the account is started, the more time those contributions have to potentially grow through compounding—all without creating future tax obligations if the withdrawals meet IRS rules.

✅ Access to Contributions Anytime

One of the most flexible features of a Roth IRA is that you can withdraw your contributions at any time, for any reason, without taxes or penalties.

✏️ Hypothetical Example: If a child contributes $5,000 over several years and the account grows to $20,000, they could withdraw the $5,000 they contributed at any time. The remaining $15,000 in earnings would still need to stay in the account until they meet the age and timing rules to avoid taxes or penalties.

📝 Note: This rule applies only to contributions, not investment earnings. Early withdrawals of earnings may trigger taxes and a 10 percent penalty.

✅ No Required Minimum Distributions (RMDs)

Unlike traditional IRAs and many workplace retirement accounts, Roth IRAs have no lifetime RMDs. That means the account holder is never forced to withdraw money during their lifetime, allowing the funds to stay invested as long as they want.

📝 Note: Starting in 2024, Roth accounts inside workplace plans, such as Roth 401k accounts, are also exempt from RMDs due to changes made by SECURE 2.0. However, the Roth IRA still offers the most flexibility when it comes to long-term tax-free growth.

2025 Contribution Limit for Custodial Roth IRAs

A custodial Roth IRA follows the same annual contribution rules as a standard Roth IRA. For 2025, a minor can contribute up to $7,000, or 100 percent of their earned income, whichever is lower.

📝 Note: “Earned income” typically includes wages from a job, self-employment income, or payments for work-related tasks. Interest, dividends, and other passive income don’t count.

How to Set Up a Custodial Roth IRA

Opening a custodial Roth IRA is simple and often takes under 15 minutes online. Most major brokerages and banks offer custodial IRAs.

Here’s what you’ll typically need:

Once the account is open, the adult custodian manages the investments until the child reaches the age of majority (usually 18 or 21, depending on the state).

Final Thoughts on Starting Early With a Custodial Roth IRA

A Custodial Roth IRA offers a rare opportunity to give kids a head start on long-term financial growth. With tax-free retirement withdrawals, flexible contribution rules, and decades of potential compound growth, it’s one of the most powerful tools to help young people start building wealth early.

📌 To keep learning, explore our other guides on retirement accounts and investment strategies:

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