Can You Open a Roth IRA with Your Child?

No, but you may be able to open one for them

Roth IRAs can offer some tax advantages to savers, including the benefit of tax-free qualified distributions. You may be wondering if it’s possible to open this special version of an individual retirement account (IRA) jointly with your child or teen. The answer is no. However, you can open a Roth IRA on behalf of your child to give them a head start on saving.

Key Takeaways

  • Roth IRAs are tax-advantaged retirement savings accounts designed to be owned by one person.
  • A Roth IRA can be opened for a minor child who has earned income for the year.
  • Roth IRAs can offer tax benefits, including tax-free qualified distributions in retirement.
  • Parents maintain control of the Roth IRA until the child reaches adulthood, at which time the account is transferred to them.

How a Roth IRA Works

A Roth IRA is a type of retirement account that allows for tax-advantaged saving. These accounts are governed by Internal Revenue Service (IRS) rules that dictate who can contribute, how much they can contribute, and how distributions are taxed.

Here are the defining characteristics of a Roth IRA:

Roth IRAs have annual contribution limits. For 2022, the limit is $6,000, with an additional $1,000 catch-up contribution allowed for savers age 50 or older. Whether you can contribute to an IRA depends on your filing status and modified adjusted gross income (MAGI).

Roth IRA Contribution Limits 2022
Filing Status MAGI Allowable Contribution
Married filing jointly or qualifying widow(er) Less than $204,000 Up to the limit
Married filing jointly or qualifying widow(er) At least $204,000 but less than $214,000 A reduced amount
Married filing jointly or qualifying widow(er) $214,000 or higher Zero
Married filing separately and you lived with your spouse at any time during the year Less than $10,000 A reduced amount
Married filing separately and you lived with your spouse at any time during the year   $10,000 or higher Zero
Single, head of household, or married filing separately and you did not live with your spouse at any time during the year Less than $129,000 Up to the limit
Single, head of household, or married filing separately and you did not live with your spouse at any time during the year At least $129,000 but less than $144,000 A reduced amount
Single, head of household, or married filing separately and you did not live with your spouse at any time during the year $144,000 or higher Zero

Source: Internal Revenue Service

You can contribute to a Roth IRA even if you already have a retirement plan at work, as long as you’re within the income guidelines.

Opening a Roth IRA for a Child

It’s possible to open a Roth IRA on behalf of a child only if that child has earned income. You would need to set up a custodial account, which you can do through a brokerage. Custodial accounts—which also can be used to save for education expenses for kids—are controlled and managed by an adult for a minor child. Once the child reaches adulthood, the assets in the account become theirs.

Opening a custodial IRA for a minor child isn’t that different from opening an IRA for yourself. The main steps include:

  • Choosing a brokerage
  • Completing the application for a custodial IRA
  • Linking an external bank account for funding

You’ll need to share your personal details, including your name, date of birth, and Social Security number. The brokerage will need the same information for your child.

A custodial Roth IRA for a minor child follows the same rules for contributions as a noncustodial IRA. The maximum contribution allowed must be the lesser of $6,000 (for 2022) or their total earned income for the year.

For an adult, the lesser-amount restriction rarely comes into play. For a kid, of course, it often does. For example, if your child earns $3,000 in one year from mowing lawns or babysitting, then the most that they could contribute to a custodial Roth IRA is $3,000. You can’t put in another $3,000 of your own money to reach the $6,000 limit.

However, the IRS won’t know where the cash actually came from. Theoretically, if your child has earned $3,000, you could contribute $3,000 on their behalf—or match what they contribute, up to $3,000. This is a good way to introduce the concept of matching funds—which your child will, you hope, encounter later in the workplace with an employee 401(k).

It may be helpful to discuss tax filing with a tax expert if your child has higher earned income or money earned from self-employment.

Benefits of Opening an IRA for a Child

There are some good reasons to consider opening an IRA for a child if they’re already earning money. One of the most obvious advantages is that time is on their side when it comes to saving. The more time their money has to grow, the more they can capitalize on the benefits of compounding interest. As they’re adding money to a Roth IRA instead of a traditional IRA, kids also get the benefit of tax-free distributions later when they’re ready to use that money for retirement.

Roth IRAs offer flexibility, as original contributions can be withdrawn without triggering a tax penalty. Funds withdrawn from original contributions can be used for any purpose. For example, your teen might take $4,000 from their Roth IRA to buy a used car. Once the account has been open for five years, your child can take out up to $10,000—without penalty and tax free—toward the purchase of a first home.

Opening a Roth IRA can also be a good way to introduce kids to the difference between saving and investing, and to instruct them on how the stock market functions. You can sit down with kids to review their investment options and explain how stocks, mutual funds, and bonds work. This can also be a good opportunity to illustrate the power of investing vs. saving in terms of the potential returns earned over time.

Using an investment calculator can be a helpful way to drive home the difference between saving money and investing it.

Can I open a Roth individual retirement account (Roth IRA) with my child?

No. Roth individual retirement accounts (Roth IRAs) are designed to be owned by one person only. Parents can, however, open a custodial Roth IRA on behalf of a minor child. Once the child becomes an adult, they assume ownership of the account.

Can I open a custodial IRA for my child with my own money?

No. A custodial IRA can only be established based on money that a minor child earns. If your child doesn’t have earned income, then you can’t open a custodial IRA for them. After the account is open, you can never contribute more to that account than the child has actually earned, up to the annual IRA limit.

How much can a minor contribute to a Roth IRA?

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 Internal Revenue Service (IRS) and adjusted regularly for inflation.

The Bottom Line

Opening a Roth IRA for a minor child or teen can be a good way to introduce them to basic financial concepts, such as saving and investing. A parent oversees the account and helps guide them with their investment decision making until they’re old enough to manage their IRA on their own. When opening a custodial IRA for a child, it’s important to compare options at different brokerages. Specifically, you should pay attention to the range of investment options, fees, and the ease of use of the brokerage’s online platform or mobile app.

Article Sources

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  1. Internal Revenue Service. “Roth IRAs.”

  2. Internal Revenue Service. “Retirement Topics — IRA Contribution Limits.”

  3. Internal Revenue Service. “Amount of Roth IRA Contributions That You Can Make for 2022.”

  4. Consumer Financial Protection Bureau. “My Son Just Started His First Part-Time Job. Can He Open an IRA?

  5. Financial Industry Regulatory Authority. “ESAs and Custodial Accounts.”

  6. Fidelity. “Open a Fidelity Roth IRA for Kids.”

  7. Internal Revenue Service. “Publication 590-B (2020), Distributions from Individual Retirement Arrangements (IRAs): Roth IRAs: Are Distributions Taxable?

  8. Internal Revenue Service. “Topic No. 557 Additional Tax on Early Distributions from Traditional and Roth IRAs.”

  9. Investor.gov, U.S. Securities and Exchange Commission. “Compound Interest Calculator.”

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