Custodial Roth IRA: how to open one for your kid in 2026

A custodial Roth IRA is a Roth IRA in your kid's name, with an adult as custodian until the kid hits the state's age of majority. The math is extraordinary: 60 years of tax-free compounding on contributions made when the kid is 12. Here's what makes it work, who actually qualifies, and how to open one.

What a custodial Roth IRA is

A Roth IRA is a retirement account that grows tax-free; you pay tax on the contributions going in, and qualified withdrawals after age 59½ are tax-free^[1]. A custodial Roth IRA is the same product, opened in a minor's name with an adult listed as custodian.

The custodian places the trades, signs the paperwork, and chooses the investments while the kid is a minor. The kid is the legal owner from day one — same fiduciary structure as any UTMA. At the age of majority (18–21, depending on state), the account converts to a regular Roth IRA in the kid's name and the custodian role ends.

The structure has been around since 1997 (when Roth IRAs were created), but it stays under the radar because the qualifying constraint — the kid needs earned income — knocks out most younger kids. For families where one kid babysits or does a summer job, it's the strongest tax wrapper available, and most parents miss it.

For the broader map of where custodial wrappers sit, see the custodial account guide — it covers UTMA, 529, custodial Roth IRA, and the Trump Account in one place.

The earned-income rule

Custodial Roth IRA contributions are capped at the lesser of:

• $7,000 in 2025 (the regular Roth IRA contribution limit), and
• 100% of the kid's earned income for the year^[1].

Earned income means wages, salary, tips, or self-employment income. It doesn't include allowance, gifts, or investment income.

What counts in practice:

• W-2 jobs (lifeguarding, retail, restaurant, summer camp).
• 1099-NEC contract work (tutoring through a service, freelance graphic design).
• Documented self-employment (lawn-mowing for the neighborhood, babysitting for a list of families).
• Modeling or acting income.

What doesn't count:

• Allowance for chores at home. The IRS view: parents paying their own kids for household work isn't a real arms-length employment relationship.
• Birthday money, gifts, inheritances.
• Investment income (dividends, interest, capital gains).
• Scholarship or grant money beyond room-and-board allocations.

The earned income has to be documented in a way that survives an IRS audit. For a W-2 job, the W-2 is the documentation. For self-employment, you keep a written log: date, customer, service, dollar amount paid. Many parents treat their kid's self-employment ledger as a matter-of-fact piece of paperwork; the IRS does, too.

How much you can put in

The contribution limit is the lesser of $7,000 or the kid's earned income. So:

• Kid earns $3,000 babysitting → max contribution: $3,000.
• Kid earns $5,000 summer camp counselor → max contribution: $5,000.
• Kid earns $10,000 model fees → max contribution: $7,000 (capped at federal limit).

The contributing money doesn't have to come from the kid's paycheck. A parent can fund the IRA from their own pocket up to the kid's earnings figure. This is the typical pattern: kid keeps the paycheck for spending, parent matches into the Roth IRA. The IRS only checks that the contribution didn't exceed earned income — not the source of cash.

The 2025 deadline for 2024 contributions is April 15, 2025 (the tax filing deadline). You file the contribution against the tax year the kid earned the income, not the calendar year of the deposit.

What it actually grows to

The math is the reason this wrapper exists.

A 12-year-old who earns $3,500 at a summer camp job and contributes the whole thing to a custodial Roth IRA. Assume that single contribution compounds at the S&P 500's long-run average of about 10% per year^[2]Based on historical returns. Past performance doesn't predict future results. until the kid hits 65. The math:

$3,500 × (1.10)^53 ≈ $580,000.

From a single $3,500 deposit. Tax-free.

If that 12-year-old contributes $3,500 every summer for six years (12 through 17), the same compounding produces roughly $2.5 million by age 65. From $21,000 of total contributions over six summers.

These numbers are why financial planners get worked up about custodial Roth IRAs. The 53-year compounding window is the longest legally available tax-deferred horizon. Nothing else comes close.

A few caveats. The S&P 500's long-run average is a backward-looking average — sequence of returns matters, market drawdowns are real, and the kid's actual portfolio choice may not match the index. But the structural advantage of 53 years of tax-free compounding doesn't depend on hitting 10%; it would still beat every taxable alternative at any reasonable return.

How to open one

Most major brokers offer custodial Roth IRAs with no minimum and no monthly fee. As of 2026:

• Fidelity — free, no minimum.
• Charles Schwab — free, no minimum.
• Vanguard — free, no minimum.
• E-Trade — free, no minimum.

The mechanics:

1. Pick a broker. The lineup of investments matters more than the brand. Fidelity, Schwab, and Vanguard all offer enough options that a Roth IRA can hold any reasonable index fund or ETF.
2. Open as a custodial Roth IRA. The application asks for the kid's SSN, the custodian's ID, and a funding source.
3. Fund within the contribution limit. Have the kid's earned-income documentation ready in case of audit.
4. Choose investments. The simplest, most common pick: a broad-market index fund (VTI, VOO, FXAIX, FZROX, FSKAX). Done.

The application takes about 15 minutes if you have everything in front of you.

Custodial Roth IRA vs. UTMA vs. 529 vs. Trump Account

Different wrappers, different jobs:

• Custodial Roth IRA — for kids with earned income. Tax-free growth on the longest compounding horizon. Restricted withdrawals until 59½ (with contribution-withdrawal carve-out).
• UTMA — general purpose. Earnings taxed annually under kiddie-tax rules^[3]. Kid takes full control at age 18–21. Maximum flexibility, lowest tax efficiency.
• 529 plan — school. Tax-free growth and tax-free withdrawals for qualified education. Penalty for non-qualified withdrawals.
• Trump Account — federal $1,000 seed for kids born 2025–2028, plus employer matches and tax-deferred growth until 18^[4][5]. Different program rules entirely.

The wrappers stack. A common 2026 setup for an aid-eligible family with a 14-year-old who lifeguards:

• Custodial Roth IRA up to her annual earnings.
• UTMA for the rest (gifts from grandparents, etc.).
• No 529 (school cost will come from financial aid + earnings).

For an aid-ineligible family with the same 14-year-old:

• Custodial Roth IRA up to her earnings.
• 529 for tuition (parent-owned, captures state deduction).
• UTMA secondary for flex.

For a family with a newborn in 2026:

• Trump Account first (federal seed + employer match — claim it).
• 529 for tuition.
• UTMA for flex.
• Custodial Roth IRA later, when the kid earns wages.

For the head-to-head between the two big alternatives, see custodial account vs. 529 plan.

Common misconceptions

"My 8-year-old needs to physically deposit her paycheck into the Roth IRA." No. The contribution can come from any source. As long as the kid earned the money, the Roth IRA can be funded — by the kid, by a parent, by a grandparent. The IRS only checks the earned-income ceiling, not the cash source.

"Roth IRA earnings are locked until 59½." Contributions can be withdrawn anytime, tax-free and penalty-free. That's a Roth feature, not a custodial-account feature. So a $3,000 contribution can come out for college expenses at age 18 with no tax bill — only the growth on top of it would owe penalty if withdrawn early outside an exception.

"Custodial Roth IRAs hurt financial aid." Retirement accounts are excluded from the FAFSA asset calculation. The Roth IRA is the cleanest wrapper for aid-eligible families.

"Allowance counts as earned income." It doesn't — chores for parents are not arms-length employment. If you want to pay your kid for work and have it qualify as earned income, you need a real employment relationship: a small business that's genuinely employing the kid, with real work product, real records, and a real W-2 or 1099.

How Slyce fits

Slyce supports custodial UTMA accounts in your kid's name where every qualifying purchase routes a $1 fractional-share buy on a standing instruction you authorize. We don't offer custodial Roth IRAs at launch — that wrapper lives at the major brokers (Fidelity, Schwab, Vanguard) where every app has free custodial Roth IRA accounts.

The pattern many families end up with: a Fidelity custodial Roth IRA for the kid's earned-income contributions, and a Slyce UTMA for the spend-to-own portion that mirrors household spending. Both stack cleanly under the same kid's SSN.

Next steps

If your kid was born 2025–2028, run the birth date through the eligibility checker first — the Trump Account seed is more time-sensitive than the Roth IRA.

For the broader account map, the custodial account guide covers all four wrappers in one place. How the kiddie tax works walks through the UTMA tax mechanics if you're running both side by side.

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