If your child has earned income, there could be benefits to opening a Roth IRA in your child’s name.
It may seem premature to help your children prepare for retirement before they even graduate from high school. But thinking about ways to help them save now — including opening a Roth IRA for them — may help provide a significant head start on saving for retirement.
Kids have more time on their side, which can be a big advantage. The money set aside in a Roth IRA for kids may compound and grow tax-free for decades. The earlier they get the money in, the more it could work for them. Every little bit helps later in life.
Consider this: A one-time contribution of $1,000 to a Roth IRA could grow to more than $12,000 in 50 years, assuming a conservative 5% annual investment return and monthly compounding.
Now imagine the total if your child made annual contributions. It’s best to work with your tax advisor with any eligible Roth IRA contribution amounts for a minor.
Here are a few other things to keep in mind regarding setting up a Roth IRA for kids.
Your child must have earned income
Kids of any age can contribute to a Roth IRA as long as they have earned income. It can be income and wages earned from a W-2 job. Self-employment income from a yardwork or babysitting business can qualify as well, as long as it’s classified as earned income reported to the IRS.
There are no age limits
Even babies can have Roth IRAs if they have income. Yes, babies. For example, if a couple’s young son received compensation after being cast in a commercial, the couple could fund a Roth IRA with the money. That’s an uncommon case, however. In most cases, children aren’t earning income until they’re older.
There are contribution limits
In 2025, the contribution limit to a Roth IRA is $7,000 a year or the total of earned income — whichever is less. For example, if your child earns $1,000 babysitting in 2025, the contribution toward a Roth IRA is capped at that $1,000 amount.
And, as long as the child has earned income, anyone can contribute money into the child’s Roth IRA (up to the child’s limit). This includes parents, grandparents, family friends, or anyone who is willing to contribute money for the child.
Other benefits beyond retirement
Many parents don’t realize that the money in a Roth IRA for a child can be used for more than just retirement. For example, Roth IRA contribution amounts can be withdrawn for any reason, even before reaching age 59½, without any taxes or penalties enforced.
Under IRS rules, children can also tap into earnings without incurring an early withdrawal penalty if the money is used for qualified higher education expenses, but they may have to pay income tax on those distributions.
Another exception allows your child to withdraw up to $10,000 of earnings for a first-time home purchase without paying income tax or a penalty if the account has been open for at least five years. But be sure to discuss this further with your tax consultant.
Keep in mind that your child will receive full control of the account once they are a legal adult. You can surprise them with it when they turn 18 (or reach the legal adult age in your state) or use the account as a tool to teach them about saving and investing as they grow from child to teen to legal adult.
You give your child a head start by building their retirement early, or maybe your child taps some of the principal to pay for school or to start their own business. Whatever’s decided, a Roth IRA can be an excellent long-term tool with a lot of flexibility.
Qualified Roth IRA distributions are not included in gross income. Roth IRA distributions are generally considered “qualified” provided a Roth IRA has been open for more than five years and the owner has reached age 59½ or meets other requirements. Withdrawals may be subject to an IRS 10% additional tax for early or pre-59½ distributions.
Wells Fargo & Company and its affiliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed.
