Roth IRA for Children
Updated April 07, 2023

Roth IRA for Children: How to Make Your Child a Millionaire


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Setting up a Roth IRA for children, whether to give them a head start on their retirement savings or as a temporary vehicle for funds earmarked for their education, is a pretty slick move employed by savvy parents.

In this article, we’ll go over why you would set up a Roth IRA for your children, the rules for setting up a Roth IRA for children, and where you can open a Roth IRA for your children.

Why Would You Set up a Roth IRA for Your Children?

There are several reasons why you would want to set up a Roth IRA for your children.

You Can Make Them $1,101,659.20

Let’s say your child makes $900 per year at age 9 ($75 per month or about $17 per week) and puts it into a Roth IRA.

Then let’s say he or she makes $1,000 at age 10 and then $1,100 at age 11 and so on until $1,800 at age 18, contributing all of these earnings into his or her Roth IRA.

Then let’s say that your child never contributes to a Roth IRA again.

So at the ripe age of 18, they are done contributing to their Roth IRA.

Assuming they let the money grow at an average 8% growth rate per year until age 70 (which is probably not unreasonable assuming that their Roth IRA was invested extremely aggressively at age 9 and for some years thereafter), they would end up with $1,101,659.20 in their Roth IRA!

Let that sink in for a second: $1,101,659.20!

You Get Them in the Habit of Investing.

Sure, your kid can become a millionaire by investing the money he or she makes from age 9 to 18.

But what if your kid keeps up this investing habit?

What if your he or she contributes $1,900 at age 19 all the way up to $2,200 at age 22, and when they get their first full-time job at age 22 they start contributing the maximum $6,000 a year, and when they hit 50 they contribute the maximum $7,000 per year up until age 70?

They’ll have a pot of over $4.5 million waiting for them at age 70, and this is assuming that Congress doesn’t raise those Roth IRA maximums over your child’s working lifetime!

So get your kids in the habit of investing now so that they can enjoy a far more abundant future than their peers.

What They Put In Can Be Withdrawn Without Consequence

Now, it’s possible that life happens and your child’s Roth IRA contributions won’t stay in the Roth until they’re age 70.

While this isn’t ideal, taking money out of a Roth IRA can possibly hurt a lot less than taking money out of a Traditional IRA or 401(k).

This is because Roth IRA contributions can be taken out tax- and penalty-free.

So if your child needs some money for college, they can tap into their Roth IRA contributions without consequence, while the earnings can remain in the Roth to continue growing tax-free.

They Can Invest Alongside Your IRA

Now, you may be wondering, “OK, so let’s say my kid has $3,000 in his or her Roth IRA.  What can they really invest in?”

Well, first off, one should not discount the power of investing in the stock market over time, and as stated at the end of this article, there are brokerages that allow you to create Roth IRAs for your children with no account minimums.

But if you’re more creative in your investment pursuits, consider that your child’s $3,000 Roth IRA can form an LLC along with your $300,000 Roth IRA and invest in asset classes that due to your expertise you may be able to earn a superior return on rather than investing in the market.

I have known people in the financial community who invest their IRA along with their child’s IRA in rental properties, private lending deals, and more.

If you want step-by-step guidance on Setting up a Roth IRA for children, check out my video below:

Roth IRA for Children Rules

Hopefully I’ve been able to convince you that setting up a Roth IRA for your child is a smart thing to do.

But before you go out there and start laying a sound financial foundation for your progeny, let’s go over the rules.

Your child can contribute up to $6,000 per year (in 2020 and 2021).

The Roth IRA is an incredible vehicle for building wealth, but the government cuts you off at contributing a maximum of $6,000 per year (for 2020 and 2021).

This is no different for children.

Those age 50 or over, however, can contribute $7,000, but I hope that you aren’t reading this article with respect to your 50-something-year-old children.

Your child must have earned income in order to open a Roth IRA.

Like anybody else, your kid has to have earned income in order to contribute to a Roth IRA, and they can only contribute to their Roth IRA up to their earned income for the year up to the maximum of $6,000.

So you can’t give them money to put into a Roth IRA; your kids have to earn it, either through a job or self-employment income.

Also, I don’t know many children with a significant passive income portfolio (such as from dividends, interest, or rental income), but this income doesn’t count as “earned income” either.

Why Not a Traditional IRA for Your Kids?

The decision to contribute to a Roth IRA or a Traditional IRA as an income-earning adult is a complex issue.

Roth vs. Traditional IRA

With a Roth IRA, you don’t get a tax deduction for the money you contribute this year, but your money grows tax-free in the account for the rest of your life.

With a Traditional IRA, you get a tax deduction for the money you contribute this year, but your money merely grows tax-deferred in the account, meaning that you will be taxed on it when you start taking money out (which under current tax law you must do after you turn 72).

So while it may be advisable for a 20-something making $50,000 a year to contribute to a Roth IRA because he or she is likely to be in a much higher tax bracket later on in life (and perhaps even in retirement), this may not be the case for the 50-something earning $500,000 a year, especially since the latter is so close to retirement and will likely be in a much lower tax bracket in retirement.

But most of the time, the issue is more cut and dry for children since their income is so low, which effectually neuters the Traditional IRA’s one advantage over the Roth IRA: an immediate tax deduction.

Your Child Probably Can’t Take Advantage of the Traditional IRA Deduction

Unless your child earns more than $12,400 in 2020 or $12,550 in 2021, he or she will not owe any regular income tax, so your child will not be able to take advantage of taking a deduction for his or contributions in the first place.

Also, even if your child does earn more than $12,200, it is still likely that he or she will still be in a low tax bracket.

There are exceptions such as extremely high-earning child actors and actresses, but barring these scenarios, it’s probably safe to say that your children will either owe no regular income for the year or if they do, they will be in a very low tax bracket, making the Roth IRA the superior choice.

How Your Children Can Generate Earned Income

With rare exceptions such as modeling or acting, small children will typically not qualify for a Roth IRA because they don’t have earned income.

However, if your child is grade school-aged or older, it is likely that they could find some way (possibly with your assistance) to make money.

Here are some ideas below on how your children can generate earned income.

Your Child Can Get a Job

Obviously, the most no-brainer way for a child (or anyone) to generate earned income is to get a job.

Here are examples of activities that children can perform to earn income that they can contribute to a Roth IRA:

  • Yard work
  • Washing cars
  • Cleaning homes
  • Babysitting
  • Selling lemonade
  • Caring for or walking pets

Your Child Can Assist in Managing Your Rental Properties

If you own rental properties, you can also pay your children to help you out with managing them.

This could be as simple as cleaning your rental properties or performing administrative tasks like updating leases or bookkeeping.

Your Child Can Help in Your Business

If you have a small business, pay your child to help you out.  Put them to work!

The benefit to you is that your business gets a tax deduction, while your child earns income at a 0% rate (assuming that they do not make more than the standard deduction for the year).

Here are some tips on employing your children in your business.

What Can They Do in Your Business?

Children as young as grade school can help with tasks such as filing and shredding paper, and older kids can help with tasks such as bookkeeping and social media management.

You could even take a picture of them to use as an advertisement on your website and pay them for modeling!

You Must Pay a Fair Wage

However, you must pay your children a fair wage; you can’t pay your child $100 per hour to shred paper.

But this doesn’t mean that you have to pay all your children minimum wage.

If your child has a learned skill such as graphic design or bookkeeping, pay them what they’re worth!

Special Tip for C Corporation or S Corporation Owners

Also, if you have a C corporation or an S corporation, it is likely advisable to set up a Schedule C business that supports your corporation, and this sole proprietorship will actually pay your child.

If you pay your child out of your C or S corporation, you will have to withhold payroll taxes on their income, and we don’t want that.

Using a solo proprietorship that supports your corporation and paying your child out of this sole proprietorship avoids the payroll tax issue altogether.

Do I Have to Issue Them a 1099 or W-2?

There is no need to issue a child under the age of 18 a Form W-2 or Form 1099 (would probably be difficult to classify your child who works for you in your business as an independent contractor) as long as they make less than the standard deduction for the year ($12,400 for 2020 and $12,550 in 2021).

However, it may be advisable that you issue your child a Form W-2 in case your brokerage company asks for proof of earned income (since it is a little bit unusual for children to open Roth IRAs).

Note that although in nearly every state you can waive your child’s unemployment insurance coverage, there may be some nits specific to your specific state that you would want to talk to a local tax professional about.

Can Parents Contribute to a Roth IRA for Their Child?

Parents can in fact contribute to a Roth IRA for their child.  This is sometimes referred to as “parental matching.”

This is acceptable as long as the total contributions to the child’s Roth IRA for the year do not exceed the child’s earned income for the year.

So if your child earned $1,000 this year and decided to spend $250 on movie tickets, video games, and clothes, they could contribute $750 of the money they earned into their Roth IRA while you can make up the $250 difference if you so choose.

Where to Open a Roth IRA for Children

Children cannot open Roth IRAs themselves.

Thankfully, you as their parent can open a Custodial Roth IRA on their behalf.

However, not all brokerages offer Custodial IRA accounts.

For example, you couldn’t open a Custodial IRA account for your child at a commission-free brokerage such as Robinhood.

Below we have listed some brokerages where you can open a Roth IRA for your children.


We recommend Fidelity since they appear to have a dedicated page for Roth IRAs for kids and they have no minimum account.

There are also no account opening or annual maintenance fees.

Charles Schwab

Charles Schwab also has a dedicated page for Custodial IRAs.

Like Fidelity, Schwab does not have account opening or annual maintenance fees on Custodial IRAs.

However, Charles Schwab does have a minimum $100 account minimum.


Vanguard is a great discount brokerage, but they have an account minimum of $1,000 in order to open a Custodial IRA.

Although this may not be a problem for some children earning more than $1,000, some children may earn less than that, precluding Vanguard as an option.

Self-Directed IRA

If you’d like for your child’s Roth to be invested in something other than stocks, bonds, mutual funds, and ETFs found at the brokerage houses above, you can open up a self-directed IRA for them.

With a self-directed IRA, your child’s Roth can invest in assets such as precious metals, cryptocurrencies, rental property, event tickets to flip, trust deeds, and more.

If this sounds like something that interests you, check out IRA Services Trust Company.

I personally have a Roth IRA account self-directed through them that has invested in various real estate deals over the years.


Logan Allec, CPA

Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.

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