A custodial Roth IRA works exactly like a regular Roth IRA — contributions grow tax-free, and qualified withdrawals in retirement owe no tax at all — with one structural difference: an adult custodian manages the account until the child reaches the age of majority. The part that actually matters is the eligibility rule sitting underneath all of it.
The rule that makes or breaks this account
A child must have earned income to contribute to a Roth IRA at any age — there's no minimum-age exception. Earned income means real compensation for real work: a formal part-time job, or legitimate self-employment income from something like babysitting, pet-sitting, or mowing neighborhood lawns, according to Fidelity's guide to custodial Roth IRAs. Allowance for chores doesn't count. Gift money from a grandparent doesn't count. The IRS is looking for a genuine income-for-labor relationship, and in the event of an audit, the burden of documenting that relationship falls on the family — a pay stub, a 1099, or at minimum a basic log of dates, hours, and payment for informal work.
2026 contribution limits
For 2026, the maximum a custodial Roth IRA can receive is $7,500, or the child's total earned income for the year — whichever is less. A parent or grandparent is allowed to contribute the money on the child's behalf (most kids aren't funneling their actual paycheck into a retirement account), but the contribution still can't exceed what the child actually earned. A 14-year-old who earned $2,400 mowing lawns over a summer can have up to $2,400 contributed to the account that year — not $7,500.
Who controls it, and when that changes
The adult custodian retains full control over contributions, investment choices, and distributions while the account is in custodial status — account statements go to the custodian, not the child. When the child reaches the age of majority, typically 18 or 21 depending on the state and the account's terms, the assets transfer into a standard Roth IRA in the child's own name, and control passes to them entirely.
The flexible part people don't expect
Roth IRA contributions — as opposed to the earnings those contributions later generate — can be withdrawn at any time, for any reason, without tax or penalty, because contributions were already made with after-tax dollars. Earnings are a different story: qualified, tax-free withdrawals of earnings require both reaching age 59½ and satisfying the account's five-year holding requirement. This makes a custodial Roth meaningfully more flexible than a 529 plan, which restricts penalty-free withdrawals to qualified education expenses.
The honest caveats
- The paperwork trail matters. Informal cash income without any record of it is the single most common reason these contributions get challenged. Keep dated records of hours worked and payment received, even for babysitting or lawn care.
- It only works at the scale of the child's actual income. This isn't a vehicle for parents to shelter large sums on a child's behalf — the contribution ceiling is the child's real earnings, full stop.
- It's a long-term bet on the child not needing the money soon. While contributions are accessible penalty-free, the entire point of the account is multi-decade compounding — pulling it out early defeats the purpose, even if it's technically allowed.
Most major brokerages — Fidelity, Schwab, and others — offer custodial Roth IRA products with no account minimums, making this more a documentation exercise than a logistical one once a child has genuine earned income to work with.