Start a Roth IRA For Your Kid

Yes, you can start a Roth IRA for your child, even if they’re a baby! All they need is earned income— but the definition of earned income is tricky. Here’s how to navigate that minefield.

Before I get into the details and how you can do the same for your kid, let me address two very common concerns:

1. All of this is perfectly legal. Like any other tax planning, starting your kid’s Roth IRA will only trigger an IRS audit if you get greedy.
2. The federal government and the college financial aid offices will not penalize your family or your child for having a Roth IRA. The reality is that you’re “penalized” even more for putting assets into a 529 account or a kid’s trust– although those are good tools too.

How to Open a Roth IRA for Your Child

Starting a Roth IRA for your kid is straightforward if they have W-2 or 1099 income. Earned income can come from just about any source and at any age, including babies and toddlers who are paid by agencies as photo models.

Kids with W-2 or 1099 income may also need to file an income tax return. IRS Publication 929 lists the requirements for filing a child’s tax return. They might not need to pay taxes on their income, but filing a return is by far the easiest way to document earned income for a Roth IRA contribution, and it’s a powerful teachable moment for kids to learn about paying income taxes.

IRS Publication 15 states that parents who pay their children under 21 as “family employees” don’t even need to issue W-2s or 1099s. Keeping simple payment records in a notebook or software is sufficient if necessary.

One practical challenge is finding an investment firm that will sub-custody a Roth IRA for a minor. Not all firms offer custodial Roth IRAs, so it’s worth researching options before getting started. Vanguard and Fidelity are commonly used options for custodial accounts.

Can I Hire My Kids in My Business?

The easiest way for kids to earn an income is to employ them in your family business if you have one, and that’s generally exempt from self-employment tax. Check with your CPA for specifics. Common kid jobs in a family business include:

• Rolling change from coin-operated laundry machines.
• Cleaning the rental property and mowing its yard.
• Baby models ($25/hour) for photos in your blog posts or product sales.
• Partners on YouTube videos.

There are two key points for paying kids in the family business:

1. Document their labor. This is as simple as a notebook with date, task, hours worked, and pay. That’s good enough for the IRS.
2. Be careful with your business deductions. If you take questionable deductions for your kid’s labor, the IRS matching computers may send a query letter about the business. One family lost a Tax Court case over their business deductions, and the IRS went after parts of the kids’ Roth IRA contributions because some of the family business deductions crossed the line from aggressive accounting into illegal territory. The lesson: keep clean, contemporaneous records, and don’t mix business jobs with household chores.

You do not need to issue a W-2 or 1099 to document your kids income for a Roth IRA contribution. A simple work log recording what they did, when they worked, and what they were paid is sufficient. The simpler your record-keeping, the more likely you are to do it consistently and correctly.

How Kids Can Earn Income Without a Family Business

Kid entrepreneurs can contribute to their Roth IRA when they have self-employment income from yard care, dog walking, babysitting, or similar work. However, they may also have to pay self-employment taxes if their net income is at least $400. A young entrepreneur will likely need help from a parent or accountant to take every legitimate deduction against their gross income. They can still contribute all of their earned income to their Roth IRA, up to the annual contribution limits.

Teens can also earn income by recording videos, running YouTube channels, or starting other online businesses. When they turn 18, they can do it in their own name without needing a family business structure.

Can I Pay My Kids for Jobs Around the House?

Maybe, but it’s a gray area. Your kids have to be paid for a job you would outsource to any other person, not for typical family chores. Here are some examples:

• Paid to paint the house, mow the lawn, or wash the car – likely earned income, especially if you’ve always hired these out

• Paid to clean a kitchen or bedroom in an investment rental property between tenants – earned income
  

• Paid to make their own bed or clean their own room – not earned income
  

• Paid to clean the kitchen in your primary residence – not earned income

If there’s no family business, the IRS may disagree that your payments to your kids qualify as earned income. When in doubt, consult your accountant before contributing to the Roth IRA.

How to Motivate Your Child to Contribute to Their Roth IRA

This is a teachable moment about choosing between immediate gratification and investing for the future. No matter what your kid decides, it’s their earned income, and the conversation itself is valuable.

One approach is to use gifting as an incentive. Per the tax code, anyone can gift anyone else up to $19,000 in 2026 with zero tax due and no paperwork. Your kid could contribute their earned income to their Roth IRA, the lesser of their earned income or $7,500 in 2026, and you could then gift them an amount to replace what they contributed, motivating them to keep saving.

Showing kids a spreadsheet of the difference between contributing to a Roth IRA at age 12 versus age 22 can also be a powerful motivator. The compound math behind a 10-year head start is compelling for financially curious kids.

Can a Child’s Roth IRA Be Used for College?

A Roth IRA can also help save for college and is more flexible than a 529 plan if your child decides not to attend college. Contributions to a Roth IRA can be withdrawn at any time for any reason without additional tax or penalties, and Roth IRA earnings can be withdrawn penalty-free for qualified educational expenses.

However, a student’s withdrawals from an IRA may be treated as income that counts against their financial aid for the following year. It’s generally better to avoid using the Roth IRA for college expenses and to keep contributing to it instead.

A teen’s Roth IRA will not affect the family’s eligibility for financial aid, retirement accounts are not included in the financial aid calculation, and students’ Roth IRA assets are not assessed as part of their expected financial contribution.

Building on Your Child’s Roth IRA After College

One of the first financial priorities for a college graduate is setting up an emergency fund. Instead of leaving that emergency fund in a checking account or savings account, they can contribute it to their Roth IRA. Since contributions can be withdrawn at any time for any reason, they can put the money to work in a bond fund or blue-chip stock fund and still have access to it in an emergency.

The earlier a child starts their Roth IRA, the greater the long-term benefit. A Roth IRA started in childhood lays a strong foundation for reaching financial independence at a younger age than most people.

Meet the Author

Doug Nordman

Doug Nordman is a United States Navy submarine force veteran with 20 years of service. Nordman retired in 2002 and wrote "The Military Guide to Financial Independence and Retirement" to share the...

Read full bio