Rules for Investing in a Custodial Roth IRA

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Key Takeaways

  • A custodial Roth IRA is a tax-advantaged retirement account that offers the same benefits as a typical Roth IRA, but it's opened by an adult on behalf of a minor.
  • A child must have income before you can open a custodial Roth IRA for them, and you may not contribute more than the child earned.
  • Custodial Roth IRAs have plenty of benefits, including tax-free investment growth and flexibility for withdrawing funds.
  • There are several rules to know about opening a custodial Roth IRA, including those regarding account ownership, contribution limits, and withdrawal restrictions.

Saving for your child’s future from a young age gives them a major head start in reaching their future financial goals, and there are several types of accounts that can help you do that. The Roth IRA is one of the most powerful tax-advantaged retirement accounts available. And while your child’s retirement may not be on your mind just yet, this type of account offers plenty of benefits and is worth considering for your child.

What Is a Custodial Roth IRA?

A custodial Roth IRA is a tax-advantaged retirement account that a parent or other adult opens on behalf of a minor. Contributions to a custodial Roth IRA are made after tax, unlike some retirement account contributions. They aren’t tax deductible and they don’t reduce your taxable income in the year you make them.

But the funds grow tax free in the account, and your child will be able to withdraw them tax free if they meet Internal Revenue Service (IRS) distribution requirements.


The major difference between a custodial Roth IRA and a standard Roth IRA is that the adult controls the custodial account and makes the investment decisions on behalf of the minor.

The account remains in the child’s name, and all the funds within the account legally belong to the child. The child gets full control of the account and investment decisions when they reach the age of majority, either 18 or 21, depending on the state.

Why Open a Custodial Roth IRA?

Roth IRAs are one of the most popular investment accounts available, and for good reasons. They offer tax advantages and flexibility, and a custodial Roth IRA lets your child start taking advantage of these perks from a young age.

“Starting a Roth IRA for a child is the most powerful savings tool we have available. There is no other account that offers tax-free growth and tax-free withdrawals,” Glen Goland, a senior investment advisor with Arnerich Massena, told The Balance in an email. “Establishing an account for a child who may have over 50 years until retirement gives that account the opportunity to compound tax-free interest for a long time.”


You can contribute to a Roth IRA after you pay taxes on the money you earn and never pay taxes on it again. You’ll enjoy tax-free growth on your investments as well as tax-free withdrawals during retirement, and even earlier in some cases.

Another benefit of contributing to a custodial Roth IRA, Goland said, is the ability to benefit from compound interest for many years. Suppose you contributed $250 per month to a custodial Roth IRA for your child from ages 14 to 18 with an annual return of 8%. By the time your child turns 18, the account will hold approximately $13,518.

The key benefit of compound interest is time, and your child's investments have plenty of time to grow because they're so far from retirement. Even if your child never contributed another cent to the account, that nearly $13,518 would grow to nearly $300,000 after 40 years assuming the same 8% return. And they would amass more than $777,000 before they reached retirement age if they continued contributing that same $250 a month.

Another benefit of a custodial Roth IRA is the flexibility, just as with any other IRA. Yes, the money in a Roth is intended to be used for retirement, but there are several situations where your child can withdraw funds early without penalties.

While the earnings in a custodial Roth IRA can only be withdrawn in select situations, contributions can be withdrawn at any time without taxes or penalties. The withdrawal rules for a Roth IRA not only make it a particularly useful tool for saving for your child’s retirement, but also for college expenses and other major life events.

Rules for Investing in a Custodial Roth IRA

A custodial Roth IRA can be a powerful tool for saving for your child’s future, but there are a few rules you should know before getting started.

Account Ownership

Like other custodial investment accounts, a custodial Roth IRA requires that an adult serves as the custodian, and it’s usually the child’s parent or legal guardian. The custodian can open and control the account as well as make investment decisions, but the funds in the account legally belong to the child. And once the child reaches the age of majority (either 18 or 21, depending on state law) the account is transitioned to a regular Roth IRA. Your child will take full control of it.


You can't take back the funds later if you contribute to the account on your child’s behalf.

Contribution Limits

The account holder must have earned income to contribute to a Roth IRA or any type of IRA. This means your child must have earned income to contribute to a Roth, or for you to contribute on their behalf.

As of 2022, the IRS allows contributions up to $6,000 or 100% of earned income. This increases to $6,500 for tax year 2023. If your child has earned income but it’s less than $6,000, you can only contribute up to the amount they earned. You can include any wages or tips they earn from a job, as well as income they earn from self-employment, such as mowing lawns in the neighborhood.

“Critically, the funds deposited into a custodial Roth IRA do not have to be those dollars earned by the child,” Goland said. “So if your child earns $5,000 serving ice cream and he or she spends those funds, you may contribute up to $5,000 of your savings to your child’s Roth IRA.”


A Roth IRA is meant as a retirement savings tool, so the account owner must generally be age 59½ or older to withdraw money from the account. It must be at least five years since the first contribution was made to the account. There will be a penalty of 10% on early withdrawals if these requirements aren't met. Withdrawals of earnings will also be subject to income tax if it hasn’t been five years since the first contribution and they haven’t reached age 59½.

The good news is there are several exceptions to these rules that allow for more flexibility. Because you’ve already paid taxes on the contributions to a custodial Roth IRA, your child can withdraw them tax free and penalty free at any time for any purpose.


While your child can withdraw custodial Roth IRA contributions tax free, the same doesn’t apply to investment earnings. Any earnings your child withdraws early that don’t meet one of the IRS exceptions will be subject to income tax and a 10% penalty.

There are several other situations in which your child can withdraw funds from a Roth IRA early:

  • To make a first-time home purchase, up to $10,000
  • To pay for qualified higher-education expenses
  • To pay for qualified birth or adoption expenses
  • If they become disabled
  • To pay for unreimbursed medical bills or health insurance while unemployed
  • In substantially equal periodic payments

How To Open a Roth IRA for Your Child

The process of opening a custodial Roth IRA is simple and can be done in a few minutes. You can open this type of account with any major online broker, such as Fidelity and Schwab. You’ll typically have to provide the same information as you would for any other brokerage account, including:

  • Social Security number
  • Driver’s license number
  • Employer information
  • Funding account

You’ll have to provide personal information both for the custodian opening the account as well as the child for whom you’re opening the account. You can select a way to fund the account after it's open and start making contributions and choosing investments.

The Bottom Line

A custodial Roth IRA can offer significant advantages if you want to invest on behalf of your child. Not only is it a powerful retirement-savings tool, but can also be used to help your child pay for college, buy their first home, or reach any of their other financial goals.

But Roth IRAs, including custodial Roth IRAs, have specific rules you have to follow to avoid taxes and penalties. Be sure you understand these rules before opening an account.

Frequently Asked Questions (FAQs)

At what age can I open a custodial Roth IRA for my child?

You can open a custodial Roth IRA for your child at any age. The only requirement is that they have taxable income. You can contribute as much as your child earns each year to the account, or up to the IRS limit.

What qualifies as income for a kid’s Roth IRA?

Taxable income for purposes of contributing to a Roth IRA can include “wages, salaries, commissions, tips, bonuses, or net income from self-employment,” according to the IRS.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Charles Schwab. “Open Custodial IRA.”

  2. IRS. “Roth IRAs.”

  3. IRS. "Traditional and Roth IRAs."

  4. IRS. "Publication 590-B (2021), Distributions from Individual Retirement Accounts (IRAs)."

  5. IRS. "Topic No. 557 Additional Tax on Early Distributions From Traditional and Roth IRAs."

  6. IRS. “Topic No. 451 Individual Retirement Arrangements (IRAs).”

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