Custodial Roth IRA in 2026: what a working minor can put in, and take back

The one condition: money earned by working

A Roth IRA for a child is an ordinary Roth IRA. The word custodial describes who manages it until the child is an adult, a matter for the institution that holds the account; IRS Publication 590-A sets no minimum age and says contributions can be made regardless of age. What it does require is taxable compensation in the year of the contribution, and the limit follows it dollar for dollar until it reaches $7,500 for 2026 (IR-2025-111).

Pub. 590-A lists what counts: wages, salaries, tips, professional fees, bonuses, commissions and self-employment income, with a few rarer items. For a self-employed person, compensation is net earnings from the business, after the business's own expenses and certain deductions. It also lists what does not: rental income, interest and dividends, pension income and amounts excluded from income.

Records that make the income real

A lifeguard has a Form W-2, which settles the question. A babysitter or a lawn mower does not, and the limit rests on income the child can show. Keep a simple log of jobs, dates, clients and amounts, and the bank deposits that match. A tax return that reports the earnings is the cleanest record of the compensation a contribution relies on. A contribution larger than the year's compensation is an excess, and Pub. 590-A charges a 6 % excise tax on it for each year it stays in the account, unless it is withdrawn with its earnings by the due date of the return, extensions included.

Taking money out: the child's contributions come first

IRS Publication 590-B sets the order in which a Roth IRA gives money back when a distribution is not qualified: regular contributions first, conversions and rollovers next, earnings last. The contributions are never taxed and never charged the 10 % additional tax when they come out. So Ava's $15,200 of contributions over four years stays reachable, for a first car, a deposit on an apartment or tuition, without any federal cost.

The earnings are another matter. A qualified distribution, tax-free in full, has to come after the 5-year period that starts with the first tax year a contribution was made, and on or after age 59½, on disability, after death, or for a first home within a lifetime limit. Earnings taken earlier are taxable income and generally carry the 10 % additional tax, unless an exception applies. Qualified higher education expenses are one of the exceptions Pub. 590-B lists, which removes the 10 % but not the income tax. A Roth is a weak college account for that reason; its strength is the length of time a teenager's dollar can stay invested.

Credits a teen cannot use

Roth contributions are not deductible, so they do not lower the teen's tax. The Saver's Credit, which rewards retirement saving by lower earners, is out of reach for most minors: Pub. 590-A excludes savers who are full-time students or are claimed as a dependent on someone else's return, and sets a birth date cutoff that a minor does not meet.

The other route to a Roth: a leftover 529

A child who never earns as a minor can still end up with a Roth funded by family money, later, through a 529 to Roth IRA rollover. That route needs a 529 open for at least 15 years, moves at most $35,000 over the beneficiary's lifetime, and still requires the beneficiary's own earned income in the year of each transfer. The two routes draw on one yearly limit. Under 26 U.S.C. 529(c)(3)(E), the 529 amount is reduced by everything else contributed to any IRA for that person in the year. Picture Eli at 23 with $12,000 of pay who already put $3,000 into his own Roth: only $4,500 can come from his 529 that year.

A family weighing where to send a teenager's money can think of the custodial Roth as the account for earned dollars and the 529 for family dollars aimed at school. The comparison of a 529 and a parent’s Roth covers the adult side of the same choice.