Custodial Roth IRA for Kids: Earned Income, Limits and Documentation

By Tom, CPA · Updated October 27, 2026

Part of: Tax Planning

TL;DR: A child with earned income can contribute up to the lesser of that income or $7,500 to a custodial Roth IRA in 2026. Parents can fund the contribution as a gift. The work must be real and documented, and the account becomes the child's at the age of majority.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

A custodial Roth IRA is a regular Roth IRA opened for a minor, with a parent or other adult as custodian. It gets the same tax treatment as an adult Roth: contributions go in after tax, growth is tax-free, and qualified withdrawals in retirement are tax-free. The catch is that the child must have earned income.

Because a teenager has 50 years or more before retirement, every dollar has an unusually long runway. This guide covers the earned income requirement, how to document kid jobs, limits, investing and later withdrawals. Figures are for 2026, as of October 27, 2026, from IRS Publication 590-A. Related: Roth five-year rules, contribution ordering and the tax planning guide.

CPA Warning Label: A Roth IRA for a 14-year-old sounds like a finance-bro flex. It is actually one of the most powerful accounts in the code, as long as the lawn-mowing money is real.

Earned income requirement

Only compensation counts: wages, salaries, tips and net self-employment earnings. Not allowance, gifts, investment income, Social Security survivor benefits or unemployment benefits.

There is no minimum age. A 6-year-old who is paid to model in a catalog has earned income; so does a 12-year-old who mows lawns in the neighborhood. The question is not age but whether the work is real and the pay is for services.

Types of kid income

• W-2 job (grocery store, lifeguard, restaurant): easiest, the W-2 is the documentation.
• Self-employment (babysitting, lawn mowing, pet sitting, tutoring, reselling): counts, but net earnings of $400 or more require filing a return and paying self-employment tax.
• Household work for a neighbor under domestic rules: counts as wages; under age 18, a babysitter is usually not a household employee for payroll tax.
• Working in a parent's business: counts if real, documented and reasonably paid. See kids tax strategies.
• Chores at home for an allowance: does not count. Paying your child to clean their own room is parenting, not employment.

Documenting kid jobs

Most kids do not get a W-2. Documentation is what makes the contribution defensible if the IRS asks.

• Keep a simple log: date, client, task, hours, amount paid.
• Pay by check or app transfer when possible, not just cash.
• Rates should be reasonable for the area and age: $15 to $25 an hour for babysitting is believable; $200 an hour is not.
• Get a short note or text from regular clients confirming the arrangement.
• File a tax return when required (for example, self-employment net earnings of $400 or more, or wages above the filing threshold), even if no income tax is due.

Audit caveat: contributions over the child's actual earned income are excess contributions, subject to a 6% excise tax each year until fixed. Inflated or invented income can also lead to penalties for the parent who filed. Keep it real and keep it written down.

Limits

The money for the contribution does not have to be the child's actual paycheck. A parent or grandparent can give the child the cash (within the $19,000 annual gift exclusion) and let them spend their earnings. Some families match: the teen saves half of their earnings and the parents fund the rest of the contribution.

Prior-year contributions can be made up to the filing deadline, so a teen who earned $3,000 this summer can contribute up to $3,000 for 2026 as late as April 2027. See the IRA contribution deadline trick.

Investing

The account belongs to the child; the custodian manages it until the age of majority under state law (often 18 or 21). Many major brokerages offer custodial Roth IRAs with no minimums and no fees.

With a time horizon of decades, a simple broad stock index fund or target-date fund is the obvious default. Avoid trying to teach "investing" with individual meme stocks in the one account where losses can never be deducted and lost contribution room can never be replaced.

The power of starting at 15

Suppose a teen contributes $4,000 a year from age 15 through 18, a total of $16,000, then never adds more. At a hypothetical 7% annual return, that grows to about $430,000 by age 65, all tax-free. Starting the same $16,000 at age 30 as a lump sum would grow to only about $170,000. This is the same compounding math that powers Roth planning for adults, just with more years.

Illustrative only; returns are not guaranteed.

Withdrawal later

Roth IRA withdrawals follow an ordering rule: contributions first, then conversions, then earnings.

• Contributions can come out at any time, tax- and penalty-free. That makes a custodial Roth a backstop for college or a first car, though using it that way gives up growth.
• Earnings are tax-free if the account has been open five years and the owner is 59½ (or disabled, or using up to $10,000 for a first home).
• Earnings withdrawn early for qualified higher education are not penalized but are taxable.

The five-year clock starts January 1 of the year of the first contribution, so opening early also starts the clock early. See five-year rules.

Financial aid

Retirement accounts, including the child's Roth IRA, are generally not counted as assets on the FAFSA. Withdrawals may count as income in later aid years, so the rule of thumb is to leave it alone during college.

Roth or traditional for a kid?

Almost always Roth. A child's income is usually taxed at 0% because the standard deduction covers it, so a traditional IRA deduction saves nothing now, while Roth treatment makes all the future growth tax-free. A traditional contribution only makes sense for a teen with enough income to owe tax, for example a high-earning child actor, and even then the Roth tends to win over a 50-year horizon.

Common mistakes

• Contributing more than earned income. The limit is the lesser of income or $7,500. Excess contributions face a 6% excise tax each year until withdrawn.
• Counting allowance or gifts as income. They are not compensation.
• Skipping the tax return. Self-employment earnings of $400 or more require a return, and the return is also your best evidence of the income.
• Forgetting to retitle at adulthood. When the child reaches the age of majority, the custodian must transfer control. Brokerages handle this, but it requires paperwork and usually a conversation about not spending it on a jet ski.
• Mixing it with a parent's account. The account must be in the child's name with their SSN; the custodian is listed, not the owner.
• Using the 529-to-Roth rollover wrong. Starting in 2024, a beneficiary can roll up to $35,000 lifetime from a long-held 529 into a Roth IRA, but it still counts against the annual limit and requires earned income.

Who should be custodian

Usually a parent. A grandparent can be custodian too, but if the grandparent dies before the child reaches majority, a successor custodian must be named. Some families name one parent as custodian and the other as successor at account opening, which takes about two minutes and avoids a future headache.

Illustration

Maya, 15, earns $6,200 in 2026: $3,500 lifeguarding (W-2) and $2,700 babysitting, logged in a notes app with dates, families and Venmo records. Her babysitting net earnings exceed $400, so she files a return and pays about $380 of self-employment tax. As a dependent, her standard deduction is her earned income plus $450 ($6,650), which covers all of it, so she owes no income tax.

Maya wants to spend her money on a used car, so her grandmother gives her $6,200, which goes into her custodial Roth by April 15, 2027. Total: a teenager with a car fund and a retirement account, and a grandmother who used a gift well within her annual exclusion.