Step-by-step · 3 min read
Roth IRA for kids
Any child with earned income can have a Roth IRA, at any age. Money contributed at 12 or 16 has fifty or more years to grow tax-free, and contributions (not earnings) can be taken out at any time without tax or penalty.
- Who it fits
- Parents of children with earned income from a job or your business.
- Figures
- 2026 tax year
The key rule
Contributions are limited to the child's earned income for the year, up to $7,500 for 2026.
5 steps
Confirm earned income
Wages from a job or your business, or self-employment income such as babysitting or lawn care. Allowance, gifts and investment income do not count.
Keep proof
A W-2, or a simple log of self-employment jobs and payments.
Open a custodial Roth IRA
Most brokerages offer one, managed by you until the child is an adult.
Contribute by the tax deadline
You can fund it as a gift, as long as the total does not exceed the child's earnings. Contributions for a year can be made until April 15 of the next year.
Invest for the long term
A low-cost, broad stock index fund is the usual choice for money that will not be touched for decades.
Example
Small amounts, big results
$5,000 a year for six years, from age 14 to 19, growing at 7% a year, is worth roughly $800,000 by age 65. All of it can come out tax-free.
Common mistakes
- Contributing more than the child earned. Excess contributions face a 6% penalty every year until fixed.
- No records of self-employment income such as babysitting.
Key dates
- April 15
- Deadline for prior-year contributions.
Questions we hear
Does my child need to file a tax return?
Only above certain income levels, or if they had self-employment income of $400 or more. Filing can still be useful as proof of earnings.
Who controls the money?
You do, as custodian, until the child reaches the age of majority in your state. Then it becomes theirs.
What to send us
- The child’s W-2 or earnings log
- Contribution confirmation
Upload them to your client portal.
General education for TaxSquad clients, not advice for your situation. Rules and figures change. Talk to us before acting on this guide.