Frequently Asked Questions
Find answers to common questions about Roth Wizards, family employment, and Roth IRA contributions.
How do I get an Employer Identification Number (EIN)?
An EIN is required if you plan to pay your child for business work, operate as an LLC or corporation, or want to open a business bank account. You can apply directly through the IRS website, or use our done-for-you EIN filing service.
What’s the difference between chores and payable household jobs?
Chores are routine family responsibilities (like making beds or clearing dishes) that should not be paid. Payable jobs are real work tasks you could hire someone else to do—like deep-cleaning, organizing, or business-related tasks. Understanding this distinction is crucial for properly documenting your child’s earnings for tax and Roth IRA purposes.
Which custodial Roth IRA provider should I choose for my child?
The best custodial Roth IRA provider depends on your priorities. Fidelity and Schwab offer excellent overall experiences with strong educational resources. Vanguard is ideal for index-fund focused investors, while E*TRADE provides robust tools. Key factors to consider include account minimums, fees, investment options, platform usability, and educational resources.
Read our complete comparison of custodial Roth IRA providers →
How and why should I pay my kids?
Paying your children teaches financial literacy, budgeting, and delayed gratification. There are several approaches: casual chore payments, weekly allowances, household employee arrangements (for non-business owners), or family business employment (for business owners). The household employee strategy allows you to pay kids for domestic work without Social Security/Medicare taxes, and the earned income qualifies them for a custodial Roth IRA.
What is a custodial Roth IRA and how does it work?
A custodial Roth IRA is a tax-advantaged retirement account that parents can open and manage for their minor children. It allows kids to save for retirement using earned income, with tax-free growth and tax-free qualified withdrawals. Children can contribute up to $7,000 per year (2025) or their total earned income, whichever is less. The account grows tax-free, and parents control it until the child reaches adulthood.
How do I set up an IRA for my child in 5 easy steps?
Setting up an IRA for your child involves: (1) Opening a custodial IRA for any child with earned income, (2) Gifting money to fund contributions if needed, (3) Choosing a Roth IRA for tax-free growth, (4) Investing for the long term with appropriate risk, and (5) Keeping good records of earned income and contributions. Starting early can result in over $1 million by retirement age with consistent contributions.
What are the benefits of opening a Roth IRA for my child?
Roth IRAs for kids offer tax-free growth, no minimum age requirement (only earned income is needed), and flexibility for educational expenses, first home purchases, and emergencies. Since children are typically in the lowest tax bracket, paying taxes now and withdrawing tax-free later makes Roth IRAs ideal. Parents and grandparents can contribute, and the account can be used for more than just retirement.
How can I set my kids up for financial success?
There are several strategies to set your kids up for financial success: UTMA custodian accounts for investment experience, 529 savings plans for college expenses, irrevocable life insurance trusts for estate planning, matching contribution funds to incentivize saving, and custodial Roth IRAs for long-term retirement savings. The key is to start early, involve your child in the process, and use the right tools to track and document their earnings.
Read our complete guide on setting kids up for financial success →
What happens to a custodial Roth IRA when my child turns 18?
When your child reaches the age of majority (18 in most states), the account is re-registered from a custodial Roth IRA into a regular Roth IRA in their sole name. The investments transfer as-is, no taxes are triggered, and the Roth five-year clock keeps running — your role as custodian simply ends. Vanguard, Fidelity, and Schwab each notify account holders and provide a re-titling process.
What’s the best Roth IRA account for a teenager?
For teens with real jobs, Fidelity is our top pick — $0 minimums, zero-expense-ratio index funds, and a companion Youth Account that teens 13–17 can trade in themselves. Schwab and Vanguard are excellent alternatives. Note that Robinhood, Ally, and Cash App do not offer custodial Roth IRAs; teens must wait until 18 to open IRAs there.
Read our guide to the best Roth IRA accounts for teenagers →
Is money paid for chores considered income?
Whether you call it allowance, chore money, commission, or pocket money, payment for routine household chores is not “earned income” in the IRS sense — no employment taxes apply and it cannot support a Roth IRA contribution. It becomes earned income when it’s structured as real work: a household employee arrangement or family business payroll, paid at market rates and properly documented.
Can I open a Roth 401(k) for my child?
No. A 401(k) — Roth or traditional — exists only through an employer’s retirement plan, so there is no “Roth 401(k) for kids” a parent can open at Fidelity, Vanguard, Schwab, or anywhere else. The custodial Roth IRA is the parent-drivable equivalent, and for children in a near-zero tax bracket the Roth structure is close to ideal.
What does “FMTC” mean on my Fidelity account?
FMTC stands for Fidelity Management Trust Company — the regulated entity that legally serves as custodian of record on Fidelity IRAs, as IRS rules require for all IRA custodians. It’s separate from the parent or guardian who manages a minor’s custodial account day-to-day; seeing “FMTC” on paperwork is standard, not a red flag.
Read our guide to Fidelity Youth Account vs. custodial Roth IRA →
Should I use a high-yield savings account instead of a custodial Roth IRA?
They serve different goals, not competing ones. A high-yield savings account is for money needed within a few years (a car, college costs) — liquid and FDIC-insured, with no risk of loss. A custodial Roth IRA is for decades-away retirement growth — invested in the market, tax-free, with real short-term risk. Most families who can afford it use both.
Do I need a financial advisor to open a custodial Roth IRA?
No — opening a custodial Roth IRA at Fidelity, Schwab, or Vanguard is a self-service process most parents complete online in 15–20 minutes without professional help, especially if you’re investing in a broad, low-cost index fund. A fee-only financial advisor (typically charging a flat fee or a percentage of assets under management) becomes worth considering if your family’s finances are more complex — multiple accounts, tax planning around a family business paying the child, or estate-planning questions — rather than for the mechanics of opening the account itself.
Can I open a Roth IRA for my adult grandchild?
Not directly — an adult grandchild has to open and own the Roth IRA themselves, since custodial accounts only apply to minors. What you can do is gift money toward the contribution, as long as your grandchild has earned income that year to justify it, or match a contribution they make themselves.
Read our guide to Roth IRAs for adult children (and grandchildren) →
What if my child turns 19, not 18 — does the custodial Roth IRA transfer differently?
The custodial-to-individual transfer happens at your state’s age of majority, not a fixed national age. That’s 18 in most states, but 19 in Alabama and Nebraska, and 21 in Mississippi. The transfer mechanics — re-registration, no tax event, five-year clock carrying over — are identical regardless of which age applies to you.