Custodial Roth IRA for Teens: How It Actually Works

By Jenna Hale · Last checked August 19, 2026

The mechanism, in one paragraph

An adult opens a Roth IRA in the child’s name and serves as the account’s responsible adult. The adult makes the decisions: opening it, choosing investments, making contributions. The child owns the assets. At the age of majority that applies to custodial accounts in your state, control transfers to them.

Everything else on this page is detail hanging off that structure. But the detail matters, because one part of it is a hard legal condition rather than a preference.

The earned income requirement is the whole ballgame

A teenager cannot have an IRA of any kind without taxable compensation. The IRS contribution limit page sets the cap as the annual limit, or, if less, taxable compensation for the year.

For tax year 2026 the annual IRA contribution limit is $7,500. A teenager who earned $2,000 in 2026 can have $2,000 go in for tax year 2026, not $7,500. A teenager who earned nothing cannot contribute at all, no matter how generous the grandparents are feeling.

That is the sentence that stops most teenage Roth plans, and it is the sentence most articles about teenage Roths skip past.

What counts, and what does not

Publication 590-A sets out what compensation means for IRA purposes.

Read the right-hand column carefully, because it kills the two most common workarounds. Interest and dividends inside a child’s savings or brokerage account are not compensation, so investment income cannot fund an IRA. And a gift is not compensation, so money handed over for being a nice person does not create IRA room.

Paying a child for real work in a family business is a different case, and it is one where the work has to be genuine, the pay has to be reasonable for the work, and the paperwork has to exist. That is a conversation with a tax preparer, not a blog post.

The part that makes this work in practice

Here is the piece that turns this from theoretical into something a sixteen year old will actually agree to.

The IRS limit is expressed as an amount, capped by compensation. It is not a tracing rule about which specific dollars are deposited. So a teenager who earns $2,000 in 2026 can keep spending their own $2,000, and a parent or grandparent can put up to that same $2,000 into the custodial Roth for tax year 2026 as a gift.

This is why the “match their earnings” arrangement is so common. The teenager experiences it as free money rather than as a confiscation, which matters at an age where the retirement argument lands as noise. Show them the compound interest visualiser once, with the sliders in their hands, and then stop talking about it.

Documenting informal income

Formal jobs handle this for you. A W-2 arrives, and the number on it is the number.

Self-employment work is where families get into trouble, because babysitting, mowing, dog walking, tutoring and reselling produce cash and no paperwork. If you are going to fund a Roth on the strength of it, you need records that existed at the time.

Keep, contemporaneously:

• A dated log: date, who paid, what the work was, how much, how they paid
• Any digital payment history, screenshotted or exported, since app records vanish
• Invoices or texts confirming the arrangement, even informal ones
• A separate note of expenses, because self-employment income is net earnings

Two thresholds are worth knowing. Net earnings from self-employment of $400 or more trigger self-employment tax, currently at a rate of 15.3 percent, made up of 12.4 percent for Social Security and 2.9 percent for Medicare. And the IRS self-employed individuals tax center states that a return has to be filed if net earnings from self-employment were $400 or more.

So the awkward truth is that funding a Roth on babysitting money often means the babysitting money gets reported, and reporting it costs self-employment tax. That is not a reason to skip it. It is a reason to do the arithmetic before you promise a teenager a match, and it is covered in more detail in babysitting, mowing and taxes.

What you cannot get from us, and why

Two questions come up constantly on this topic and both of the popular answers are made up.

“What is the minimum age?” There does not appear to be a federal minimum age for a custodial Roth. It is a function of brokerage policy sitting on top of state custodial law. Major brokerages decline to publish a single number. Any page that tells you the answer is eight, or thirteen, or whatever, is filling a gap with confidence. Ask the specific firm.

“When does it become theirs?” The age at which control transfers is set by state law for custodial transfers, and the furthest any reliable source goes is that it is typically 18 or 21. The OCC’s consumer site says the age varies by state. We are not publishing a fifty-state table, because the tables in circulation contradict each other and we have not read fifty statutes. Name your state to the brokerage and get the answer from them in writing.

They get the money, and they get to be wrong with it

This is the part to be honest about before you open anything.

The account is the child’s. At the transfer age, they can take it over, and what they do with it after that is not your decision. They can leave it invested. They can move it. They can pull out contributions. They can decide at twenty-two that a Roth IRA is a boomer artifact and put the balance into something you would consider unwise.

On withdrawals specifically: Publication 590-B describes ordering rules under which regular contributions come out first, and a distribution that is a return of regular contributions is not included in gross income. Earnings are the constrained part, and a qualified distribution generally requires both a five-year period and reaching age 59 and a half, with a set of listed exceptions. The publication is the place to check that, not a comment thread.

Parents sometimes hear that and treat it as a bug. It is worth reframing. The whole point of this account is that it is theirs, and an account that is theirs is an account they can misuse. If that possibility is intolerable to you, do not open this account. Save the money in your own name and give it to them later, on your terms, which is a legitimate choice and an honest one.

What this looks like

Julian is seventeen and works at a garden center from May through August of 2026. His W-2 for tax year 2026 shows $3,100 in wages.

His compensation for the year is $3,100, so the maximum that can go into a Roth for tax year 2026 is $3,100. The $7,500 limit for tax year 2026 is not the binding number here, and it never will be while he is working summers.

His father offers a deal: Julian keeps every dollar of his own wages, and his father puts $1,500 into a custodial Roth in Julian’s name as a gift. That is under his compensation for the year, so it fits. Julian’s spending money is untouched, which is the only version of this he was ever going to agree to.

They open it at a brokerage that told them, on the phone, what its own policy on custodial accounts requires, and which age applies for their state. Julian’s father keeps the W-2 with the account paperwork, because the record of compensation is the thing that supports the contribution.

Two years later Julian takes over the account. He has been told, plainly, that it is his and that nobody can stop him emptying it. He knows the balance, he knows what it was worth when it went in, and that is roughly the extent of the leverage anyone has, which is how it should be.

Where this fits with everything else

If the question underneath this one is really “can my teenager buy stocks”, the answer and the account structures are in can a teenager invest in stocks. A Roth is one of several shapes and it is the one with a hard entry condition.

If they have not filed a return before and you are wondering whether a summer job even needs one, that is does my teenager have to file taxes, which carries the current thresholds with their tax years attached.

And if the money is currently in a shoebox, the account to open first is a plain deposit account, not a brokerage account. Start with how to open a bank account for a minor.

This is general information, not tax or investment advice, and the figures change every year. Verify against the linked IRS pages, and talk to a tax professional before funding an account on the strength of informal income.