Table of Contents
Table of Contents

Guardian IRA Definition

What Is a Guardian IRA?

A guardian IRA is an individual retirement account (IRA) that is set up and managed by an adult for a minor. Guardian IRAs can also be held for adults who can't handle their own finances because of a physical or mental disability.

Guardian IRAs, which are also called custodial IRAs, are held and overseen by the guardian for a child or other minor until they reach the age of 18 or 21, depending on the laws in the state of residence. Guardians can set up either traditional or Roth IRAs.

Key Takeaways

  • A guardian IRA is a custodial retirement account held on behalf of a minor or incapacitated adult.
  • Minors can gain control over their accounts once they turn 18 or 21 depending on the state.
  • A guardian IRA may be suited for minors who are earning their own income.
  • The guardian IRA can be either traditional or Roth.

Understanding a Guardian IRA

The adult responsible for the guardian IRA makes investment decisions on behalf of a minor or an adult who is unable to manage their finances. A guardian IRA remains in the minor or incapacitated adult's name. The responsibilities of a guardian end once the child is no longer a minor, which is 18 (or 21 in some states), or when the adult can handle their own finances.

Guardian IRAs can be can be either traditional or Roth, and they work just like a non-guardian IRAs. For example, children can contribute to a guardian IRA as long as they have earned income in the tax year in which they make contributions. Children of any age can contribute to a guardian IRA.

IRAs make sense for kids who have enough earned income that they would have to file income taxes. The standard deduction for 2023 is up to $13,850 for individuals, up from $12,950 for 2022. This means that kids could earn up to those limits and not have to pay any federal taxes, though they would still have to file a return. Keep in mind, though, that there are contribution limits for IRAs. The limit for 2023 is $6,500 and $6,000 for 2022.

Like other IRAs, contributions to a guardian IRA cannot exceed the accountholder's earned income for the year in which they contribute.

Benefits of a Guardian IRA

Like a typical IRA, the money in a guardian IRA has tax advantages. The benefit of a Roth over a traditional IRA is that when the child withdraws the money many decades later, they won't have to pay income tax on it. What's more, there are currently no required minimum distributions (RMDs) on Roth accounts. In contrast, with a traditional IRA, your deposits are made with pre-tax funds, but you will pay taxes when you make a withdrawal in your retirement years.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 pushed back the age at which you need to take RMDs, from 70½ to 72. Traditional IRA owners can keep making contributions indefinitely. If you reached the age of 70½ in 2019, the prior rule applies. If you reached age 70 ½ in 2020, 2021, or 2022, you must take your first RMD by April 1 of the year after you reach 72 years of age.

The age for RMDs was raised once again following the passage of the SECURE Act 2.0 in 2022. As of Jan. 1, 2023, the age to begin taking RMDs is 73. The age increases to 75 if you turn 74 on or after Jan. 1, 2033.

Converting a traditional IRA to a Roth may make sense for kids, especially in years when they have little to no income. They could convert up to the standard deduction each year and pay little to no federal taxes.

How Does a Guardian IRA Benefit Work?

A guardian IRA is an IRA set up and managed by an adult on behalf of a minor or incapacitated adult. Guardian IRAs can be opened as traditional or Roth IRAs. The benefits and requirements are the same as non-guardian IRAs. Once the child is no longer a minor or the adult can handle their own finances the responsibilities of the guardian end.

Can You Open an IRA for Your Child?

Yes, you can open an IRA for your child. In order to do so you’ll need to set up a guardian IRA in the child’s name. As guardian of the account you’ll be responsible for managing it on your child’s behalf until they are no longer a minor.

What's the Youngest Age to Open an IRA?

An IRA can be opened for a child of any age. An adult will have to open a guardian IRA on behalf of a child. In order to contribute to a guardian IRA, a child must have earned income in the tax year in which they make contributions.

The Bottom Line

Opening a guardian IRA for a child can help them get a head start on building a retirement nest egg, as well as teach them about saving and investing.

Guardian IRAs can be either traditional or Roth, and they operate in the same way as non-guardian IRAs. If you are considering a guardian IRA for a minor or incapacitated adult, consider consulting Investopedia's lists of the best IRAs and best Roth IRAs to help you research and compare.

Article Sources
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  1. Charles Schwab. “Open Custodial IRA.”

  2. Internal Revenue Service. "Retirement Topics - IRA Contribution Limits."

  3. Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2023."

  4. Internal Revenue Service. "Publication 929, Tax Rules for Children and Dependents," Pages 3-6.

  5. Internal Revenue Service. "Traditional and Roth IRAs."

  6. Internal Revenue Service. "Retirement Plan and IRA Required Minimum Distributions FAQs."

  7. U.S. Congress. "H.R.2617 - Consolidated Appropriations Act, 2023." Division T: Section 107.

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