Custodial Roth IRA for Kids: A Step-by-Step Guide for High-Income Parents

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

The best custodial Roth IRA for kids is a plain Roth IRA for a minor at a large, low-cost brokerage: no account fee, no minimum, access to broad index funds, and an easy way to hand control to your child at adulthood. The account itself is the easy part. What decides whether your child can have one is their own earned income: for 2026 the contribution is capped at the lesser of $7,500 or what the child earned that year, and there is no minimum age (IRS Pub 590-A, IRS Notice 2025-67).

This guide walks through opening and running one step by step, for W-2 households in California and Washington earning roughly $750,000 to $3 million with children under 12. It covers where a young child’s income can honestly come from when neither parent owns a business, the paperwork that makes the contribution defensible, and a worked example with real numbers.

Why your own income does not matter here

For 2026, married couples filing jointly are phased out of direct Roth IRA contributions between $242,000 and $252,000 of modified AGI (Notice 2025-67). A household earning $900,000 in salary and RSUs is far above that, which is why parents at this income use the backdoor Roth or the mega backdoor Roth in their 401(k).

A custodial Roth IRA belongs to the child. Only the child’s income counts, both for eligibility and for the limit. Your W-2, your bonus and your RSU vests play no part. The flip side: your money cannot create eligibility. Gifts, allowance and investment income in a UTMA account are not compensation (Pub 590-A).

Step 1: Confirm your child has real earned income

For a child under 12 in a family where both parents are employees, the legitimate sources are narrow:

• Modeling, acting and voice work. Catalog, print and commercial bookings in the Bay Area, Los Angeles and Seattle are the most common source for young children. Pay usually runs through an agency on a W-2 or a 1099.
• Work for people outside the household. Around age 10 or 11, dog walking, pet sitting or yard work for neighbors can count as self-employment income, if the child actually does the work and is paid a going rate.

What does not count: allowance, birthday money, and anything routed through an arrangement created only to produce “income”. Payment for routine chores in your own home is hard to tell apart from an allowance, so we would not rely on it. Many articles suggest hiring your child in your business. That is a route for business owners doing real work at a reasonable wage, and it does not apply to a family of W-2 employees. If your child has no earnings this year, a Roth IRA is simply not available yet, and a 529 plan is usually the right place for money you are setting aside for them.

California child performers: part of a minor’s earnings under a court-approved entertainment contract must go into a blocked Coogan account (Cal. Family Code §6752). That does not reduce the Roth limit. The limit is based on what the child earned, not on which dollars you deposit.

Step 2: Keep a simple earnings file

The IRS does not ask for proof when you contribute. The question comes later, if ever. A short file makes the contribution easy to defend:

• W-2s or 1099s from any agency or production company.
• For neighbor jobs, a one-page log: date, neighbor, task, hours, amount paid, and how it was paid (check or app transfer beats cash).
• A copy of the child’s tax return, if one was filed (see Step 5).

Step 3: Choose the custodian and open the account

You open the account as custodian, with the child as the owner. You will need the child’s Social Security number and date of birth, plus your own details. What to look for when comparing brokerages:

• No annual account fee and no minimum opening deposit. At a few thousand dollars a year, a $25 or $50 fee is a real drag.
• Low-cost broad index funds or ETFs, with fractional shares if possible.
• Clear rules on when control passes to your child. Custodial IRAs typically transfer at 18 or 21, depending on your state and the custodian’s agreement. Read that section before you sign.
• Online access you can later share with your child, so the account can become a teaching tool.

There is no need to put the child’s Roth with the firm that holds your own accounts, though keeping it there simplifies statements.

Step 4: Fund it and invest for decades

The child’s earnings set the ceiling. The deposit can come from you. If your son earned $3,000 and his pay went to a Coogan account or was spent, you can give him $3,000 to contribute. That gift counts toward your $19,000 federal gift tax annual exclusion per child for 2026 (Rev. Proc. 2025-32).

Contributions for a tax year can be made until the return due date for that year, so 2026 contributions can go in until April 15, 2027 (Pub 590-A). Our Roth IRA contribution calendar covers the timing in detail. Label the deposit with the correct tax year when you make it.

With a time horizon of 50 years or more, most families choose a broad, diversified stock index fund. Avoid cash sitting uninvested, which is the most common mistake in custodial accounts.

Step 5: Handle the child’s tax filing

• W-2 pay: payroll taxes are withheld by the payer. A dependent’s standard deduction rises with earned income, up to the single standard deduction of $16,100 for 2026 (Rev. Proc. 2025-32), so a few thousand dollars of wages usually means no federal income tax.
• Self-employment pay: once net earnings from self-employment (92.35% of net profit) reach $400, the child owes self-employment tax and must file a return with Schedule SE (Schedule SE instructions).

One detail most guides miss: for self-employment income, the Roth limit is based on net earnings minus the deduction for half of self-employment tax, not the gross amount collected (Pub 590-A). The worked example shows the difference.

Worked example: a $1.4 million Palo Alto household

Assumptions (illustrative): married parents, a physician and a biotech director, with $1.4 million of combined 2026 W-2 income including RSUs. Their daughter is 10 and walks dogs for three neighbors after school. She collects $2,400 in 2026, paid by app transfer, and keeps a log. Her 7-year-old brother has no earnings.

Her parents give her $2,230 and deposit it in her custodial Roth IRA. They also give her roughly $339 to cover her self-employment tax, which is part of the cost of doing this properly. Her brother gets no Roth this year. His savings go to his 529.

What it could become: if she earns and contributes a similar $2,230 each year from age 10 through 17, eight contributions at a hypothetical 7% annual return grow to about $22,900 by 17. Left untouched until age 60 at the same hypothetical rate, that becomes roughly $420,000. This is arithmetic, not a forecast. Returns vary and can be negative.

Next to this family’s 401(k) and RSUs the amounts are small. The value is time: decades of tax-free growth, and no required minimum distributions for the original owner (Pub 590-B). California generally follows the federal Roth rules, and Washington’s capital gains tax does not apply to gains inside retirement accounts (Washington DOR).

Common mistakes with custodial Roth IRAs

• Contributing more than the child earned. The excess is taxed at 6% for each year it stays in the account (Pub 590-A). Fix it by withdrawing the excess and its earnings by the return due date, including extensions.
• Counting allowance or gifts as income. They never count.
• Using gross instead of net self-employment income. See the example above.
• Skipping the child’s tax return when net earnings from self-employment reach $400.
• Treating it as a college fund. Contributions can be withdrawn at any time, but earnings withdrawn before age 59½ and five years are generally taxable and may carry a penalty (see our Roth withdrawal rules). Education money usually fits better in a 529.

What to write down for your child

The account teaches far more if the reasoning travels with it. A one-page note for the file can cover why you opened it, what work earned the contribution, why you chose a stock index fund, and what you hope the money is for. When control passes at 18 or 21, your child inherits the reasoning along with the balance. As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.” That is the idea behind Age Five Wealth Education and the FamilyKnowledge® Library, and it is why a family governance habit often starts with a small account like this one.

Frequently asked questions

At what age can a child open a Roth IRA?

There is no minimum age. Pub 590-A says contributions can be made regardless of age. A baby with modeling income qualifies. The practical limit is earned income: most children have none until they book paid work or start small jobs for neighbors around age 10 or 11. Without earnings, no contribution is allowed, at any age.

What is the custodial Roth IRA contribution limit for 2026?

For 2026, the limit is the lesser of $7,500 or the child’s taxable compensation for the year (Notice 2025-67, Pub 590-A). A child who earned $1,800 can contribute at most $1,800. For self-employment income, compensation is net earnings minus the deduction for half of self-employment tax, so the limit is slightly lower than the amount collected.

Can grandparents fund a custodial Roth IRA?

Yes, as long as the total contributed for the year does not exceed the lesser of the child’s compensation or $7,500 for 2026. A grandparent’s deposit is a gift that counts toward that grandparent’s own $19,000 annual exclusion per grandchild for 2026. Coordinate within the family so two people do not both fund the full amount.

Next step

Look at last year and this year: did either child earn anything you can document? If yes, open the account and put the 2026 contribution in before April 15, 2027. If no, fund the 529 and revisit when paid work starts. For how this fits with your own retirement accounts and benefits, see our retirement and employee benefits work, or start with a Tax & Wealth Assessment.

This is general education, and the right move depends on the family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

Connect on LinkedIn →  · About Kevin