Here are some facts that you may not be aware of that could make setting up a Roth for your child a no-brainer.

1. Savings at any age. No matter how old or young your child is, they can contribute to a Roth IRA as long as they have earned income.

2. Parental Involvement. Either a parent or other adult must open the Roth IRA for a child. Both Fidelity and Charles Schwab offer custodial IRA’s. There may be others that do as well. You would need to check with each brokerage firm or bank.

3. Flexible Convenience. Unlike other retirement savings accounts, you can withdraw funds from your Roth IRA without penalty*. This could also make it a vehicle for college savings, first home savings, wedding, baby, etc.


It is important to learn the rules about opening a Roth IRA for a minor and determine whether this savings vehicle is the right one for your child.

1. Earned Income. If a child has earned income, then he or she is eligible to contribute to a Roth IRA. The IRS defines earned income as taxable income and wages – this could be money earned from a w-2 job or from 1099 wages from babysitting, tutoring or from modeling or acting work. Whatever way your child earned his or her income – if they file taxes, then they can contribute to their own Roth IRA.

2. Yes, you can contribute. Parents and other adults may contribute to a custodial Roth IRA as long as that contribution does not exceed the contributions made by the child.

3.Contribution Limits. Just as with a standard Roth IRA, the 2019 Roth IRA contribution limit is $6,000 per year or the total of the earned income for the year- whichever is less. This is an important distinction especially if you’d like to match your child’s contribution. If a child earns $1,000 in 2019 for dog-walking, then the maximum amount that she can contribute to the Roth IRA is $1000. So, if she chooses to contribute the entirety of her earnings to her Roth, then you will not be able to contribute as well.


In order to open a Roth IRA for your child, you’ll need to provide social security numbers, birthdates and other personal information for you and your child (or the child for whom you are opening the account). The process is fairly simple and should only take about 15 minutes.

If, after reading this, you have determined that your child is eligible to contribute to a Roth IRA, you might now be wondering if it is really the right vehicle for them to save with. While there are a great many mitigating factors to each family’s unique circumstances that will determine the answer to that question, consider the following when making your choice.

Investing is Better than Saving

While savings accounts are great for kids and still have a place (for birthday checks from Grandma) investing in a Roth IRA has the potential for long-term growth that will (likely) outpace inflation and grow tax-free for decades. Yes, savings accounts have a small interest rate (on average about 0.09% but that doesn’t hold a candle to the average 6% one might earn on a long-term investment. While past performance does not guarantee future results one only needs to look at the chart below to demonstrate that history is on the side of investors even in a two-decade period with a great recession. Meanwhile, an investment of $6,000 into a 1% APY savings account today wouldn’t even double that investment in 60 years.


Source: Macrotrends:


You are more than likely aware of the phenomenon of compound interest that works in the following way: With more time, the money you invest makes you more money. While most of us have around 30 years to save for retirement, children have a whole lot longer and if they begin investing their earnings early, they could be looking at tax-free growth for upwards of 50 years. Even if they had a few years during college when they were unable to contribute, the investment that already existed would continue to grow during that time.

Double the Tax Savings

Unlike a traditional IRA or 401k, Roth IRA contributions are made after taxes have been taken out of your earnings. For children whose tax rates are extremely low, because they are not likely making much money, they may be paying little or no income tax on their earnings. Since you pay no tax on withdrawals that you make from your Roth IRA*, children may experience the great benefit of paying zero taxes on their investment on either side of it.

More than just Retirement Income

It goes without saying that Roth earnings can be used for retirement, but because of the flexibility of Roth Accounts, there are many ways in which contributions can be used. After funding a Roth for at least five years, you may take up to $10,000 out to buy a first home without tax or penalty. Roth IRA earnings may also be used without penalty to fund qualified educational expenses, though the earnings distributed will be taxed as income.

Saving for retirement can begin at any age. Teaching your children how they can grow their wealth as soon as they begin earning money is a phenomenal lesson and truly a gift that keeps on giving. For this and any other financial decisions, you may like to consult a financial advisor. We are happy to meet with you in person or over the phone to discuss your options and help you grow your wealth (and your children’s!). Contact an advisor today by emailing us at or completing the form on our contact us page.

* Roth IRA withdrawal penalties and taxes vary depending on age.  Age 59 and under can withdraw contributions from the Roth IRA anytime, tax- and penalty-free. However, you may have to pay taxes and penalties on earnings in your Roth IRA.

If you take a distribution of Roth IRA earnings before you reach age 59½ and before the account is five years old, the earnings may be subject to taxes and penalties. You may be able to avoid penalties (but not taxes) in the following situations:

  • You use the withdrawal (up to a $10,000 lifetime maximum) to pay for a first-time home purchase.
  • You use the withdrawal to pay for qualified education expenses.
  • You’re at least age 59½.
  • You become disabled or pass away.
  • You use the withdrawal to pay for unreimbursed medical expenses or health insurance if you’re unemployed.
  • The distribution is made in substantially equal periodic payments.1
  • Withdrawals from a Roth IRA you’ve had more than five years.

If you’re under age 59½ and your Roth IRA has been open five years or more, your earnings will not be subject to taxes if you meet one of the following conditions:

  • You use the withdrawal (up to a $10,000 lifetime maximum) to pay for a first-time home purchase.
  • You’re at least age 59½.
  • You become disabled or pass away.
  • You use the withdrawal to pay for unreimbursed medical expenses or health insurance if you’re unemployed.
  • The distribution is made in substantially equal periodic payments.