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Opening an IRA for Your Child: What You Need to Know

Opening an IRA for Your Child: What You Need to Know

Jenius Bank Team2/15/2024 • Updated 1/24/2025
A young boy, middle-aged man, and older man sitting next to each other reading books.
An IRA may help you start saving for retirement no matter how young, or young at heart, you are.Individual retirement accounts (IRAs) are a common type of retirement savings that you may be contemplating for yourself or even for your child.Wondering if you should open an IRA to start helping your child save for retirement? Let’s explore these important retirement savings questions.This information is not tax or investment advice. You should consult with a tax advisor and/or a qualified investment professional for advice specific to your particular circumstances.

Key Takeaways

  • There is no minimum or maximum age for opening or contributing to an IRA, you just have to have taxable income.
  • Parents and guardians may open IRAs for their children to use in the future and may contribute to those accounts up to the child’s earned income.
  • Your child may take over the account and start making contributions on their own when they reach adulthood.

IRA Minimum and Maximum Age Limits

There aren’t minimum or maximum age limits for opening a traditional and Roth IRA account. As long as you have taxable income, you can open an account and make contributions up to the IRS’ contribution limits.1 Additionally, adults can open custodial IRAs for minors when they see fit, as long as the minor has taxable income.A custodial IRA is simply an IRA account that a custodian, typically a parent or guardian but could be any adult, opens on a minor’s behalf and manages until the child reaches adulthood, typically between 18 and 21.2With a custodial IRA, adults may make contributions as long as the child is earning some amount of taxable income.3 The contributions can’t exceed the IRS’ limit, which is $7,000 in 2025, or the amount the child earned, whichever is less.4

Does Age Impact IRA Rollovers, Transfers, or Conversions?

Rollovers, transfers, and conversions don’t have age restrictions. Here’s a quick reminder of the difference between them.
  • Rollover: Moving money from a qualified retirement account, such as an employer-sponsored 401(k), to a traditional IRA.5
  • Transfer: Moving money from one IRA account to another of the same type.6
  • Conversion: Converting a traditional, SEP, or SIMPLE IRA into a Roth IRA.7 Note that conversions are taxable events, and the amount converted is subject to income taxes the year the conversion occurs.8
While these transactions don’t have age restrictions, they may have tax implications for you. Consult with a tax advisor for more information.

Opening an IRA for Your Child

If you’re interested in helping your child get a jumpstart on retirement saving, starting young could help them achieve greater financial success in the future.Here’s some insight on setting up your child’s IRA.

How to Open an IRA for Your Child

An adult may establish a custodial traditional IRA or a custodial Roth IRA for a child. Both types of retirement accounts could help build savings for them to use in the future. Remember that Roth IRAs require the account to be open for a minimum of five years before an individual may withdraw earnings, tax-free.9Sound easy? Well, the catch is that your darling child must earn some form of taxable income. The income source could be anything from acting and modeling to mowing lawns and babysitting.10˒11These taxable earnings may be used to open and contribute to a custodial IRA for your child up to the limits — $7,000 in 2025, for example — or the amount your child earned, whichever is less.12Additionally, adults may make gift contributions to a child’s IRA up to the contribution limit or the amount the child earned, whichever is less.13For example, say your child earns $1,800 in 2025 from working part-time bagging groceries. They have the option to contribute up to $1,800 to their IRA. Additionally, family and friends could make gift contributions to the IRA as long as the total contributions from all parties don’t exceed $1,800.14Something to keep in mind with gift contributions is that they conform to gift tax rules, which have annual and lifetime limits.15As always, it’s best to consult your financial advisor to set up these accounts and your tax advisor for tax implications.

How the Funds Could Be Used

Opening a custodial IRA is a great way to kickstart your child’s retirement savings. However, there are two common, lesser-known uses for IRAs that may benefit your child sooner than age 59 ½.One of these is the ability to use IRA funds for qualified education expenses in college, such as tuition, room and board, textbooks, and more, without incurring a 10% early distribution penalty.16 This may be a way to complement other college savings accounts, such as a 529.Depending on the IRA type or length of time the account has been open, there may be income taxes to pay at withdrawal.17 Talk to your tax advisor regarding the impact on your specific scenario.Second, IRA funds may be used towards a down payment on a home, up to $10,000, also without incurring that additional 10% early withdrawal penalty.18 Your child may use this to help them get into a home of their own once they take full possession of the account at adulthood. Once again, your trusted tax expert is a great resource to consult with on this.

Final Thoughts

IRAs could help you be better prepared for expenses when you retire, and you’re able to open one whenever you have taxable income to start contributing.You may also choose to open a custodial IRA for your child to help jumpstart their retirement savings and teach them about financial responsibility early in life.While there aren’t any age limits about when you’re able to open an IRA, there are age considerations when it comes to withdrawing funds, so be sure to keep these in mind.IRAs may be a great retirement savings tool when you understand how they fit into your unique financial situation. That said, it’s always a good idea to consult with a financial and tax advisor about your specific situation to make sure you’re getting the most out of these accounts.
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