Can You Open an IRA for Your Children?

Are you looking for ways to give your child a financial head start? A child care IRA is one of the smartest tools parents can use to build long-term wealth for their kids. In this guide, we cover the types of IRAs available for children, the brand-new Trump Accounts launching in 2026, updated contribution limits, and step-by-step instructions to open an account.

Can Children Have Their Own IRA?

Yes! Kids of any age can have their own individual retirement account. However, there is one key requirement: earned income. The IRS defines earned income as taxable wages from working as an employee or running a business. In other words, if your child earns money, they can fund a child care IRA.

Most importantly, opening a child care IRA early lets your kids take advantage of compound interest. Even small contributions grow significantly over decades. For example, a child who starts saving at age 10 could have decades more growth than someone who waits until age 30.

Which IRA Is Best for Children?

Generally speaking, two types of IRAs are available for children: traditional and Roth IRAs. Below, we explain the key differences so you can choose the right one.

Traditional IRA vs. Roth IRA

The key difference between these accounts is when you pay taxes. With a traditional IRA, contributions may be tax-deductible now, but withdrawals in retirement are taxed as ordinary income. On the other hand, with a Roth IRA, you pay taxes on contributions upfront. As a result, both contributions and earnings grow completely tax-free.

Because most children earn very little, they typically pay little to no income tax on their contributions. Therefore, a Roth IRA is especially powerful for young savers. Your child locks in a very low (or zero) tax rate today and never pays taxes on the growth. For this reason, we recommend a Roth IRA as the best child care IRA option for most families.

Quick Facts About Custodial Roth IRAs for Kids (2026)

How Custodial Roth IRAs Work

Essentially, a custodial Roth IRA works just like an adult Roth IRA. The main difference is that a parent or guardian opens and manages the account on behalf of the child. Then, when the child reaches the age of majority (18 in most states), they take full control of the account.

No Age Requirement

Notably, there is no minimum age to contribute to a Roth IRA. Even babies and toddlers can have an account as long as they have earned income. For instance, a child who models, acts, or does any legitimate paid work qualifies. However, the income must come from a W-2 job or self-employment—not from allowances or gifts.

2026 Contribution Limits

For 2026, the IRS raised the annual IRA contribution limit to $7,500 (up from $7,000 in 2025). As a result, your child can contribute up to $7,500 or their total earned income for the year, whichever is less. For example, if your child earns $3,000 mowing lawns, the maximum contribution is $3,000.

Income That Does Not Qualify

Keep in mind that certain income types cannot fund a child care IRA. Specifically, these include:

• Rental income or property maintenance income
• Interest, dividends, and capital gains
• Pension or annuity income
• Allowance money or cash gifts

Parents Can Contribute Too

In addition to the child’s own contributions, parents and other adults can contribute to a child’s Roth IRA. However, the total cannot exceed the child’s earned income for the year. For example, if your child earns $3,000 selling baked goods, you could match that amount—contributing up to $3,000 on their behalf.

Flexible Withdrawal Options

Another advantage is that a Roth IRA offers flexibility. Contributions (not earnings) can be withdrawn at any time, tax-free and penalty-free. Furthermore, the IRS allows penalty-free early withdrawals of earnings for specific purposes:

• Up to $10,000 (lifetime limit) for a first-time home purchase
• Qualified higher education expenses
• Up to $5,000 for birth or adoption of a child
• Certain unreimbursed medical expenses

In contrast, for other early withdrawals of earnings before age 59½, a 10% penalty and income taxes may apply.

NEW for 2026: Trump Accounts for Children

Starting in 2026, parents have an exciting new option. The One Big Beautiful Bill Act (signed July 4, 2025) created Trump Accounts—a brand-new type of IRA designed specifically for children. Here is what you need to know about this new child care IRA option.

Who Is Eligible?

Any child under age 18 with a Social Security number can have a Trump Account. Unlike a Roth IRA, the child does not need earned income. Additionally, children born between January 1, 2025, and December 31, 2028, qualify for a one-time $1,000 deposit from the U.S. Treasury. However, children born before 2025 can still open an account but do not receive the $1,000 seed money.

Contribution Rules

Contributions begin on July 4, 2026. After that date, parents, family members, and employers can contribute up to $5,000 per year until the child turns 18. Of that total, employers may contribute up to $2,500. Also, the $1,000 government deposit does not count toward the $5,000 annual limit. After 2027, the $5,000 limit will be indexed for inflation.

How to Open a Trump Account

To open a Trump Account, you can file IRS Form 4547 with your 2025 tax return (due April 15, 2026). Alternatively, you can register through the online portal at trumpaccounts.gov, which is expected to launch mid-2026. Keep in mind that investments are limited to low-cost U.S. index funds with expense ratios of 0.1% or less.

Withdrawal Rules for Trump Accounts

Generally, distributions are not allowed before the child turns 18. After age 18, the account converts to a traditional IRA. Consequently, withdrawals are taxed as ordinary income, and the 10% early withdrawal penalty applies before age 59½ unless an exception applies (such as education expenses or a first-time home purchase).

Can You Have Both?

Yes! In fact, you can open a Trump Account and a custodial Roth IRA for the same child. Since the contribution limits are separate, this means families can maximize retirement savings for their kids using both account types simultaneously.

How to Open a Child Care IRA: Step by Step

Opening a custodial Roth IRA is quick and simple. To get started, follow these steps:

1. First, choose a brokerage that offers custodial Roth IRAs (such as Fidelity, Schwab, or Vanguard).
2. Next, gather your documents. You will need Social Security numbers for both you and your child, a government-issued photo ID, and bank account information.
3. Then, complete the application. Most brokerages allow you to apply online in 15 minutes or less.
4. Finally, fund the account and select your investments.

Start Building Your Child’s Future Today

In summary, opening a child care IRA—whether a Roth IRA, a Trump Account, or both—is one of the smartest financial moves you can make for your family. Not only do you teach your kids financial literacy, but you also harness the power of compound growth from an early age.

The experts at Honest Buck Accounting help early childhood education business owners make smart financial decisions for their businesses and their families. If you want to learn more about retirement savings, IRAs, or your personal tax strategy, contact us today!