Can I Contribute Money to My Children's Roth IRA?

by Mike Parker

Qualified retirement plans are nothing new. Corporate pension plans have been around since at least the beginning of the 20th century. Tax advantaged retirement plans for self-employed individuals are a much more recent development. Congress authorized the first individual retirement accounts for self-employed taxpayers in 1974 and has since expanded the eligibility for IRAs to most individuals who have earned income, including children.

Roth IRA

There are two primary types of individual retirement accounts. The original IRA, commonly referred to as a traditional IRA, allows you to deduction your contributions from your income when you file your federal income tax return. Earnings in the account grow tax deferred until you begin taking withdrawals once you reach retirement age. All withdrawals are treated as ordinary income. You can't deduct contributions from a Roth IRA, but earnings grow tax deferred as long as they are in the account, and qualified withdrawals are free from federal income tax.


There is no minimum age requirements for your child to have a Roth IRA. There is no maximum age at which your child must begin taking withdrawals from her Roth IRA. The only age restriction involves qualified withdrawals. Since contributions to a Roth IRA are made on an after tax basis, your child can withdraw her contributions at any time without causing a taxable event. Earnings must remain in the account for at least five years before they are eligible for qualified withdrawal. Your child cannot take any qualified withdrawals of the earnings portion of her Roth IRA until she reaches age 59 1/2 years. Non-qualified withdrawals will be taxed as ordinary income and will be subject to a 10 percent tax penalty.

Earned Income

Roth IRAs are only available to individuals who have income from work, commonly referred to as earned income. Income from interest or dividends does not qualify as earned income. An allowance for taking out the trash does not qualify as earned income. Money earned from babysitting the neighborhood kids, even on an occasional basis, does qualify as income. Income earned by mowing the neighbor's lawn qualifies as income. Any income your child receives as compensation for personal services, whether in the form of wages, salaries, fees, tips or commissions qualifies as earned income. The income may be in the form of cash, cash equivalents such as a check, merchandise, property or other bartered items, such as a trip to Disneyland.

Parent Contributions

Contributions to a Roth IRA may not exceed the lesser of the child's total earned income or $5,000 as of the time of publication. The Internal Revenue Service does not require at the child's actual earnings be used to fund her Roth IRA. IRS Publication 590 only states the maximum amount that can be contributed to her Roth IRA. You can contribute 100 percent of the amount of your child's earned income into her Roth IRA, regardless of what she did with her earnings. Keep in mind that once you contribute funds to your child's Roth IRA, those funds belong to her and she can do as she wishes with them.

About the Author

Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.

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