You can open a Roth IRA for your grandchildren as soon as they have earned income, and there is no minimum age. The account is a custodial Roth IRA, opened in the child’s name and Social Security number with an adult managing it. You can fund it yourself, up to the lesser of the child’s earnings for the year or the 2026 annual limit of $7,500.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Because the money grows tax-free and the earliest penalty-free withdrawal age is 59½, a Roth opened for a 10-year-old has more than fifty years to compound.
The One Eligibility Rule: Earned Income
Your grandchild needs earned income for the year you contribute. That means wages, salary, tips, or net self-employment earnings from actual work.2Internal Revenue Service. Retirement Topics – IRA Contribution Limits Babysitting, lawn mowing, tutoring, lifeguarding, part-time retail, modeling, freelance work — all qualify. Allowances, birthday money, gifts from you, interest, and dividends do not.
The contribution cap is whichever is lower: the child’s total earned income for the year, or $7,500 for 2026. If your grandchild earned $3,000 waiting tables over the summer, $3,000 is the ceiling for that year regardless of how much you’d like to put in. The dollars you contribute don’t have to come out of the child’s own paycheck. You can write the check. What matters is that the earnings existed.
The income phase-outs that limit high earners from contributing to a Roth are not a concern here. A child working part-time will fall well below those thresholds.
Documenting the Earnings
The IRS doesn’t require a special form to prove eligibility, but if the contribution is ever questioned, you’ll want records. This is where custodial Roths either hold up or create trouble.
If your grandchild works a W-2 job, the employer’s W-2 is your documentation. Keep a copy with the IRA records.
Self-employment takes more effort. For odd jobs like pet-sitting, lawn care, or selling crafts, keep a written log: date, description of the work, who paid, and how much. Save invoices, payment app screenshots, and any messages from customers. The point is a paper trail showing real work for real pay.
Net self-employment earnings of $400 or more in a year trigger a federal tax return, with the income reported on Schedule C and self-employment tax on Schedule SE.3Internal Revenue Service. Publication 334 (2025), Tax Guide for Small Business Below $400, no return is required unless another filing threshold applies, and the Roth contribution remains valid as long as the earnings are genuine.
Hiring Through a Family Business
One route to earned income is having the child do real work for a family business. The pay has to be reasonable for the tasks performed — paying a 12-year-old $30 an hour to shred papers invites scrutiny.
If your grandchild is under 18 and works for a parent’s sole proprietorship (or a partnership where both partners are the child’s parents), those wages are exempt from Social Security and Medicare taxes.4Internal Revenue Service. Family Employees The exemption does not extend to corporations, and it does not apply when the grandparent is the employer. The parent’s business structure is what matters.
Opening the Account
Minors can’t sign brokerage contracts, so the account is set up as a custodial Roth IRA. It belongs to the child from day one, but an adult custodian manages it until the child reaches the age of majority. Most major brokerages offer these accounts online with no minimums and no account fees.
The custodian is usually a parent. Some brokerages allow a grandparent to serve in that role, and the specific brokerage’s policy is worth checking before you start the application. As custodian, you pick investments, make contributions, and handle paperwork. What you can’t do is take the money back. Once contributed, the assets are the child’s.
These accounts sit under state law — the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act, depending on where you live. Either framework makes the contribution irrevocable.
Contribution Limits and Gift Tax
The 2026 Roth IRA contribution limit is $7,500 for anyone under 50.1Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 That cap is per person and covers all of the child’s IRAs combined, not per account. And it can never exceed actual earned income.
Your contribution counts as a gift to the grandchild for tax purposes. The 2026 annual gift tax exclusion is $19,000 per recipient, so a full Roth contribution of $7,500 is comfortably below the reporting threshold.5Internal Revenue Service. Estate and Gift Tax If you’re making other sizable gifts to the same grandchild in the same year, watch the combined total.
Fixing an Excess Contribution
Contributing more than your grandchild earned, or more than $7,500, creates an excess contribution. The IRS charges a 6% excise tax on the excess for every year it stays in the account.2Internal Revenue Service. Retirement Topics – IRA Contribution Limits
To avoid the penalty, pull the excess plus any attributable earnings out before the tax return filing deadline, including extensions.6Internal Revenue Service. IRA Year-End Reminders The brokerage can calculate the earnings portion for you. If you contributed $5,000 but the child only earned $3,200, remove the extra $1,800 and its earnings before the deadline.
When the Money Can Come Out
Roth IRA distributions follow a set order: original contributions come out first, then any conversion amounts, then earnings.7Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs) That ordering is what makes the Roth flexible.
Contributions Are Always Reachable
Your grandchild can withdraw their original contributions at any time, at any age, for any reason, with no tax and no penalty.8Internal Revenue Service. Roth IRAs The money went in after tax, so pulling it out is just a return of already-taxed dollars. If $15,000 has been contributed over the years, up to $15,000 can come out cleanly.
Earnings and the Five-Year Rule
Pulling earnings is a different story. For earnings to come out completely tax-free, the distribution must be qualified: the account has to have been open at least five tax years, and the withdrawal has to meet one of a short list of conditions — age 59½, disability, death, or a first-time home purchase up to $10,000.9Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs The five-year clock starts January 1 of the tax year for which the first contribution was made, so opening the account when your grandchild is young disposes of that requirement decades in advance.
Earnings withdrawn before both conditions are satisfied face ordinary income tax plus a 10% early withdrawal penalty.10Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions A few exceptions waive the 10% penalty:
- Qualified higher education expenses (tuition, fees, books, room and board) for the account holder, spouse, or dependents.
- A first-time home purchase, up to $10,000 in lifetime distributions. The buyer must not have owned a home in the prior two years.11LII / Legal Information Institute. 26 USC 72(t)(8) – Definition of First-Time Homebuyer
- Disability that prevents substantial gainful activity and is expected to be long-term or permanent.
These exceptions kill the 10% penalty but don’t automatically make the earnings tax-free. Escaping income tax on earnings still requires the five-year rule to be met. For a Roth opened in childhood, that clock runs out long before any of these life events arrive.
Rolling a 529 Plan Into the Roth IRA
If you’ve been saving for the same grandchild in a 529 college plan, the SECURE 2.0 Act now lets leftover 529 funds be rolled into a Roth IRA for the beneficiary. Starting in 2024, unused college savings don’t have to sit or come out with penalties.12Office of the Law Revision Counsel. 26 USC 529 – Qualified Tuition Programs The rules:
- The 529 must have been open for the beneficiary for at least 15 years.
- Contributions made in the last five years and their earnings can’t be rolled over.
- Rollovers count against the Roth’s annual contribution limit ($7,500 in 2026), reduced by any other IRA contributions made that year.
- The lifetime cap on 529-to-Roth rollovers is $35,000 per beneficiary.
- The transfer has to move directly from the 529 trustee to the Roth trustee. A distribution check you redeposit doesn’t count.
One useful detail: the grandchild does not need earned income to receive a 529 rollover. The earned income requirement applies only to regular contributions.12Office of the Law Revision Counsel. 26 USC 529 – Qualified Tuition Programs
What Happens When Your Grandchild Turns 18 (or 21)
When your grandchild reaches the age of majority under state law, custodial authority ends and the account converts to a standard Roth IRA in their name. The transition is automatic. From that point on, the young adult controls the contributions, investments, and withdrawals.
The transfer age depends on the state and the custodial framework. The default is often 21 under UTMA, though some states use 18. A number of states let the person who set up the account specify a later transfer age, sometimes up to 25. You can’t hold custodial control indefinitely, but choosing a permitted later transfer age at account opening can push the handoff a few years if that matters to you.
The handoff doesn’t reset the five-year clock and doesn’t change any tax treatment. Contribution history and account age carry over intact. A Roth opened when your grandchild was 8 remains one that has been open since that first tax year.
Effect on College Financial Aid
A custodial Roth has a distinct advantage over ordinary custodial investment accounts when it comes to the FAFSA. Retirement account balances are not reported as assets on the FAFSA, so money parked in your grandchild’s Roth doesn’t hurt aid eligibility. UGMA and UTMA investment accounts, by contrast, count as the student’s assets and are assessed at up to 20% of their value.13Federal Student Aid. FAFSA Checklist – What Students Need
The picture shifts if your grandchild actually takes distributions during college. The FAFSA asks about untaxed portions of IRA distributions as part of its income calculation, and even a nontaxable withdrawal of contributions can show up on the tax return in a way the formula picks up.14Federal Student Aid. 2025-26 FAFSA Help – Find Tax Information The straightforward answer is to leave the balance alone during the years the FAFSA looks back on. Untouched, the Roth stays invisible to the aid formula.