A Roth IRA may not seem like the most exciting gift for a child or grandchild, but it can be one of the most valuable. When a young person has earned income, a Roth IRA creates an opportunity to start building wealth decades before retirement is even on the horizon.
In this short video, Rory O’Hara explains how Roth IRA gifting works, including the earned income requirements, contribution rules, custodial Roth IRA accounts, and how parents and grandparents can help fund contributions on behalf of a child.
Watch now to learn how a simple Roth IRA contribution can help create long-term financial growth, valuable investing habits, and a lasting family legacy.
Transcript
Ever wish there was a way to give a child or grandchild something that actually grows with them? Not just something they spend and forget? A Roth IRA might not sound like the most exciting gift. But for a child or grandchild with earned income, it can be one of the most meaningful financial head starts you can give them. You’re putting money aside while also helping set up decades of potential tax-free growth, long before retirement ever even enters the conversation.
So, let’s walk through how families actually gift a Roth IRA the right way, step by step. First, there’s one rule you can’t get around. The child has to have earned income. That means money they actually make from work. Not from an allowance, not birthday money, and no gifts.
It has to be earned compensation. And here’s the key detail: the contribution limit is tied directly to what they earn. However, for 2026, the annual IRA contribution limit is $7,500 for someone under the age of 50. So, if a teenager earns only $2,000 in a summer job, then the maximum contribution is $2,000.
It’s a simple rule, but an important one. Now, here’s where it gets interesting. The child doesn’t actually have to fund the account themselves; a parent or grandparent can step in and contribute on their behalf, as long as the child has earned income equal to or greater to that contribution. For example, if your grandchild earns $3,000 lifeguarding over the summer, you could contribute $3,000 to her Roth IRA.
She earned the income, but the contribution itself can come from you. Think of it like this: they earn the income, you help turn that income into a long-term wealth-building habit. That’s the shift that makes this strategy so powerful.
Once the rule is clear, the next step is how the account actually gets set up for the child. For minors, this is typically done through a custodial Roth IRA. An adult can manage the account until the child reaches the age of majority under state law. And once that account is open, time becomes the biggest advantage. Even small contributions made at age 15 or 16 have decades to potentially grow.
That early start doesn’t just impact retirement savings. It also teaches valuable lessons, even more valuable, like how investing works, why consistency matters, and how time is one of the most valuable advantages to creating long-term wealth. There’s one more practical piece families should be aware of: gift tax rolls. For most houses, this strategy fits comfortably within the annual gift tax exclusion. In 2026, that amount is $19,000 per recipient, which means Roth IRA contributions for a child or grandchild typically fall well within that limit.
A Roth IRA might not be the most exciting gift that a child receives, but years from now, it could be one of the most valuable. Starting early gives time a chance to do much of the heavy lifting, which is why many families view this strategy as an investment not only in the child’s future, but also in their financial education. A Roth IRA gift is simple on the surface, but when coordinated with your larger family plan, it can become part of a much bigger family legacy.
Before you open an account, it’s a good idea to speak with your advisor and tax professional, especially if the child works in a family business, has self-employment income, or the family is already using other gifting strategies.
To learn more about Ausperity Private Wealth, or schedule an introductory conversation, visit our website at ausperityprivatewealth.com and book an appointment, or feel free to call me directly, 856-252-0102.
Thank you for watching.
Frequently Asked Questions
Who can contribute to a Roth IRA for a child or grandchild?
Parents, grandparents, and other family members can contribute to a child’s Roth IRA, provided the child has earned income. The contribution cannot exceed the amount the child earned during the year or the annual IRA contribution limit, whichever is lower.
Can a child open a Roth IRA if they have a summer job?
Yes. A child who earns income from a summer job, babysitting, tutoring, lawn care, or other legitimate work may be eligible to contribute to a Roth IRA. For minors, the account is typically established as a custodial Roth IRA and managed by an adult until the child reaches the age of majority.
Why do families use Roth IRAs as a wealth-building strategy for children?
Many families use Roth IRAs because contributions made early in life may have decades to grow. Beyond the potential for long-term tax-advantaged growth, a Roth IRA can also help children learn foundational financial concepts such as saving, investing, and the value of starting early. Working with a financial advisor like our team at Ausperity can help families determine how a Roth IRA may fit within broader gifting and legacy planning goals.