Most parents want their kids to grow up financially confident. But most parents are accidentally using a 1950s strategy: the allowance.
An allowance is a gift. It can disappear on small purchases, and might not teach your kids everything they need to know about how to build long-term wealth.
If your goal is long-term tax-advantaged growth potential, there's a better way. It starts with understanding one of the most powerful financial tools available to families today: the Custodial Roth IRA.
This guide explains what a Custodial Roth IRA is, how the earned income requirement works, and how families can now use everyday household tasks to get their child started.
What Is a Custodial Roth IRA?
A Custodial Roth IRA is a retirement investment account opened by a parent or guardian for a minor child with an SSN. It follows the same rules as a standard Roth IRA, with one key difference: a parent manages the account until the child reaches adulthood.
Here are the key benefits:
Tax-free growth3. Investments grow without annual taxes on gains or dividends, giving potentially decades of uninterrupted compounding.
Tax-free qualified withdrawals in retirement*. When your child withdraws funds in retirement, they pay nothing to the IRS on that money.
Flexible access to contributions. Contributions (but not earnings) can typically be withdrawn at any time without penalties, giving the account flexibility beyond a traditional retirement account.
Flexibility for major milestones. Under certain conditions, Roth IRA funds may also be used toward education expenses or a first-time home purchase, not just retirement.
The 2026 contribution limit is $7,500, or the total of your child's earned income for the year, whichever is less.
Does My Child Need a Job to Open a Custodial Roth IRA?
Yes, but not in the way most parents assume.
The IRS requires that contributions come from legitimate earned income. That income must be documented, properly reported, and compliant with IRS guidelines.
For most families, this is where the process breaks down. Setting up payroll records, generating W-2s, and meeting IRS documentation requirements has historically required an accountant or payroll service, adding cost and complexity that kept many families from ever getting started.
The good news is that everyday household tasks can qualify as earned income when structured correctly.
FutureMoney built the Generations Plan specifically to solve this problem.
The plan handles everything that has historically made Custodial Roth IRAs out of reach for everyday families. Your child completes age-appropriate household tasks. Those payments are structured as IRS-compliant earned income, with payroll documentation, W-2s, and tax filings handled automatically behind the scenes. FutureMoney then invests those wages into a Custodial Roth IRA, using diversified across low-cost index portfolios built for long-term growth.
3Qualified Roth IRA distributions are federal tax-free. A distribution is generally qualified if the account has been held for at least five years and the owner is age 59½, deceased, or disabled. Non-qualified withdrawals of earnings may be subject to income tax and penalties. Other conditions may apply.
Here's how it works:
1. The Work Your child earns income through age-appropriate household tasks.
2. The Compliance The Generations Plan handles the employment relationship, IRS-compliant payroll, W-2 filings, and all documentation needed to stay audit-ready.
3. The Growth Those wages are automatically invested into a diversified Custodial Roth IRA.
Can Household Tasks Count as Earned Income for a Roth IRA?
Yes. Tasks like cleaning, yard work, pet care, and basic household organization can qualify as legitimate work when payments are properly documented and meet IRS Publication 926 guidelines for household employment.
The key is establishing a bona fide employment relationship with reasonable compensation, proper documentation, and detailed records of work performed. The Generations Plan automates this entire process so families can meet IRS requirements without the administrative burden.
Why Starting Early Matters
Time is the most valuable asset in any investment account. A $100 monthly contribution starting at age 4 could grow to over $1.2 million by retirement. Wait until age 25 to start, and you would need nearly 5x more per month just to reach the same outcome.*
A child who starts contributing at age 4 has more than five decades of potentially tax-free compounding ahead of them before the typical retirement age, something no adult investor can replicate.
By connecting everyday household responsibilities to a real investment account, families can give their children both a financial head start and an early education in how earning, saving, and investing actually work.
Ready to get started? Learn more about FutureMoney's Generations Plan at futuremoney.co/generations
Hypothetical example for illustrative purposes only. Not a guarantee of future results. Assumes an 8% return consistent contributions and does not account for fees or early withdrawals.
