Roth IRA for Kids in 2025: How to Start and Why It Matters

-

Opening a Roth IRA for your child might sound premature—but in 2025, it’s becoming a smart financial move embraced by more American families. With rising concerns about the long-term sustainability of Social Security and increasing college costs, parents are turning to custodial Roth IRAs to give their kids a powerful head start on future wealth.

In a recent CNBC report, financial advisors noted a surge in parents setting up Roth IRAs for children with part-time income. The key? Your child must have earned income from a job—babysitting, working retail, or helping in a family business all qualify.

Parent and child reviewing Roth IRA investment on laptop in 2025

What Is a Roth IRA for Kids?

A Roth IRA for a minor is a custodial account managed by an adult, typically a parent. Contributions are made with after-tax dollars and grow tax-free. When the child reaches 59½, withdrawals are tax-free as well—assuming the account has been open at least five years.

Why It Matters in 2025

With inflation and tuition fees showing no signs of slowing down, starting early gives your child decades of compounding growth. Even a modest $1,000 annual contribution from age 15 could grow into six figures by retirement.

How to Start a Roth IRA for Your Child

  1. Ensure your child has documented earned income.
  2. Choose a brokerage offering custodial Roth IRAs with no minimums and low fees.
  3. Open the account in your name as custodian, and contribute based on your child’s income (up to $7,000 in 2025).

Best Brokerages for Custodial Roth IRAs in 2025

  • Fidelity: No account minimums and robust mobile tools.
  • Charles Schwab: Great educational resources and zero-commission ETFs.
  • Vanguard: Excellent for long-term, low-cost investing.

Tax Benefits and Limitations

Though contributions aren't tax-deductible, Roth IRAs allow withdrawals for qualified educational expenses without penalties. Just be sure to follow IRS contribution rules based on your child’s actual income.

Piggy bank labeled Roth IRA symbolizing early investment for kids

Final Thoughts

Introducing your child to investing early not only teaches financial responsibility but also creates lifelong habits. Whether it's a future college fund or a head start on retirement, a Roth IRA can be one of the best gifts you ever give your child.

Want more strategies for building long-term wealth? Explore our guide on how to start investing with just $100 in 2025.

Published by financewisedaily

Popular posts from this blog

How to create a financial plan as a couple

-
Image
How to Create a Financial Plan as a Couple Creating a financial plan as a couple can strengthen not only your finances but also your relationship. Whether you're newlyweds or long-time partners, aligning your money goals is essential to building a secure future together. Start with Open and Honest Conversations Before setting any financial goals, it’s important to have transparent conversations about your current financial situation. This includes disclosing debts, income, savings, credit scores, and spending habits. According to a 2024 report by CNBC, nearly 30% of couples said financial disagreements were a major source of tension in their relationship. Clear communication is the foundation of a strong financial partnership. Set Joint and Individual Goals Once everything is laid out, start discussing your shared priorities. Do you want to buy a home, travel, or start a family? At the same time, recognize and respect each other's personal financial goals. A balanced pl...
Read more

The best zero-fee online banks to switch to in 2025

-
Image
The Best Zero-Fee Online Banks to Switch to in 2025 In 2025, more Americans are actively switching from traditional banks to digital-only options that offer zero fees, better interest rates, and user-friendly apps. If you’re still paying monthly maintenance charges, now may be the perfect time to make the switch to a zero-fee online bank. Why More People Are Going Digital According to a 2024 survey by American Banker, nearly 38% of U.S. adults have switched to a digital-only bank for their primary checking or savings account. The reasons? Convenience, transparency, and — above all — the elimination of hidden fees. Top Online Banks with No Fees in 2025 SoFi Bank : No monthly maintenance fees, early direct deposit, and up to 4.60% APY on savings. Ally Bank : Zero monthly fees and no overdraft penalties. Also known for strong customer support and intuitive UI. Chime : No fees for overdraft (up to $200 with qualifying direct deposit) and no monthly service charges. Capi...
Read more

How to track your net worth over time

-
Image
How to Track Your Net Worth Over Time Your net worth is more than just a financial figure—it's a snapshot of your overall financial well-being. Tracking it regularly helps you understand how your assets and liabilities evolve and whether you're building real wealth over time. In 2025, with interest rates remaining high and inflation stabilizing, more Americans are looking at net worth as a better indicator of financial progress than income alone. According to a recent NerdWallet report , millennials and Gen Z are facing slower net worth growth due to rising housing costs and increased borrowing. 1. What Is Net Worth? Your net worth is calculated by subtracting your total liabilities from your total assets. Assets can include cash, investments, retirement accounts, and property. Liabilities include credit card debt, student loans, car loans, and mortgages. 2. Why You Should Track It Many people focus only on income or monthly budgets, but that doesn’t give a full pictu...
Read more