Roth IRA for Working Kids

If you child or grandchild has earned income, then he or she can open a Roth IRA and make annual contributions. While the kid/child needs to have earned income in order for contributions to be made, the contribution can come from their parents, uncles, god parents or any other individual. The Roth IRA regulations do not require that the contribution is made from a check coming from an IRA owner’s bank account. Anyone can technically write the check for a valid Roth IRA contribution, as long as the Roth IRA owner qualifies.

Earned Income for Kid/Child Roth IRA

As long as the kid/child has earned income that can be reported on a tax return he or she can open and contribute to Roth IRA. This could be a child’s summer job, whether working for a company or earning money on their own walking the neighbors dogs, watching the neighbors kids,  mowing lawns,  modeling jobs, or part-time jobs during the school year.

Distributions from Kid/Child Roth IRA

A Roth IRA for a kid/child also allows for distributions of the basis (contributions) tax and penalty free before age 59 ½. What is more, once the kid/child reaches age 18, he or she can also distribute the gains (earnings) without having to pay the 10% early distribution penalty if the funds are used to pay for college tuition; however ordinary income taxes would still apply.

The prior year kids Roth IRA contribution must be made by April 15 of the following year even if a timely filed tax extension was filed. For example, the 2018 Kid/Child Roth IRA contribution has to be made by April 15, 2019 not October 15, 2019.

More Information

  • The 2018 contribution limit to a kid/child Roth IRA is $5,500 or the amount of compensation, which ever is less.
  • See IRS publication 929, Tax Rules for Children and Dependents for reporting and paying taxes on kid/child income.
  • The tax code does not require a minimum age for opening a Roth IRA. While minor cannot legally sign the forms for establishing a Roth IRA, the child’s parents or an adult can open the Roth IRA for the kid.

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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