Why Every Kid Should Have a Roth IRA Before They're 18

The short answer

A custodial Roth IRA lets a parent or guardian open a Roth IRA for a child who has earned income, such as a part-time job, babysitting, or mowing lawns. Contributions are limited to the lesser of what the child earned or the annual IRA limit ($7,500 for 2026), and growth and qualified withdrawals are tax-free.

The main advantage a young investor has is time. Compound growth needs decades to work, and a teenager is in one of the lowest tax brackets they'll ever be in.

Hey everyone,

Today I want to talk about one of the most underrated moves in personal finance, and almost nobody teaches it to kids: starting a Roth IRA young.

If you've read my other posts, you know I believe most of us grow up with almost no real financial education. We're taught the quadratic formula but not the difference between a Roth and a traditional retirement account. And that gap costs people decades of potential growth they can never get back.

Why starting young matters so much

The biggest advantage a young person has isn't money. It's time. Compound growth needs time to work, and the earlier you start, the more dramatic the results become.

Here's a simple way to think about it: if a 15-year-old invests $2,000 and never adds another dollar, letting it grow for 50 years at a historical stock market average of around 8-10% annually, that single contribution could grow into tens of thousands of dollars by retirement. Someone who waits until their 30s to invest that same amount loses decades of compounding, and no amount of extra contributions later fully makes up for that lost time. (You can see this for yourself with our What If calculator.)

This is why I think the earlier we teach kids about investing, the better. Not just the theory of it, but the actual hands-on experience of opening an account and watching it grow.

What is a Roth IRA, actually?

A Roth IRA is a retirement account where you contribute money you've already paid taxes on, and in exchange, all the growth and withdrawals in retirement are completely tax-free. For a kid or teenager who's likely in the lowest tax bracket they'll ever be in, this is about as good of a deal as it gets. They're paying little to no tax now, and locking in tax-free growth for the rest of their life.

A few important rules:

• You need earned income to contribute. This isn't a birthday-money account. The child needs to have actual income from a job, whether that's a part-time job, babysitting, mowing lawns, or working for a family business.
• Contribution limits apply. You can only contribute up to what the child earned that year, up to the annual IRA limit set by the IRS ($7,500 for 2026).
• Someone else can contribute on their behalf. As a parent or grandparent, you can "match" what your child earns and put that money into the account yourself, as long as it doesn't exceed what they earned.

How does a custodial Roth IRA work?

Since minors can't open brokerage accounts on their own, this is where custodial accounts come in. Platforms like Fidelity offer custodial Roth IRAs specifically designed for this. A parent or guardian opens and manages the account on behalf of the child until they reach adulthood (usually 18 or 21, depending on the state), at which point full control transfers to them.

Why this matters:

• It's easy to open. Fidelity's custodial Roth IRA has no account minimums and no account fees, meaning a family can start with even a small amount of money.
• It teaches real financial literacy. Watching an actual account grow, seeing statements, and understanding what's happening with their money teaches a kid more about investing than any classroom lecture could.
• It builds lifelong habits. Kids who grow up seeing investing as normal are far more likely to continue investing as adults, rather than viewing the stock market as something confusing or intimidating.

The costs and things to watch out for

This isn't a perfect, risk-free strategy, and it's important to be honest about the tradeoffs:

• Market risk still applies. Like any investment account, the value can go down as well as up. It's important to teach kids that this is normal and part of long-term investing, not a reason to panic. If the basics of stocks and funds are new to you, our free Investing Basics course covers them in a few minutes.
• The money isn't easily accessible. Roth IRA contributions can technically be withdrawn without penalty, but the earnings are meant to stay invested until retirement. This isn't a savings account for a new phone or a car down the road.
• It requires parental involvement. A custodial account means the adult is legally responsible for managing it properly until the child takes over, so it does take some ongoing attention.

The bigger picture

I think about it like this: if we can teach kids to open a bank account, we should be teaching them to open a Roth IRA. The tools already exist: free, low-barrier custodial accounts through platforms like Fidelity make this accessible to almost any family, not just wealthy ones. What's missing isn't access; it's awareness.

If you're a parent reading this, and your teenager has even a small part-time job, consider opening a custodial Roth IRA and matching a portion of what they earn. It might be one of the most valuable financial gifts you ever give them, not because of the dollar amount today, but because of the decades of compounding ahead of them and the lifelong habit it builds.

Key takeaways

• The child needs earned income. Allowance and gifts don't count.
• The limit is the lesser of earnings or the IRA cap, $7,500 for 2026.
• Time is the real asset. Early contributions have decades to compound.
• It's not a savings account. The earnings are meant to stay invested.

This is exactly the kind of knowledge I believe should be common, not rare. Until it is, that's what Learn to Love Money is here for.

More soon,
Learn to Love Money

Sources

• IRS: Roth IRAs
• IRS: Publication 590-A, Contributions to Individual Retirement Arrangements
• Fidelity: Roth IRA for Kids