Trump Account vs. Custodial Roth IRA: Which Is Best for Your Child?

A lot of people regret not investing in their 20s. But what if you could go back in time even further and invest some of the money you earned from babysitting or mowing lawns in your teens?

If you invested $150 a month at age 25 and earned 8% annual returns, you’d have nearly $470,000 by your 65th birthday. But if you started investing at 15? You’d have over $1 million by age 65.

Obviously, there’s no way to turn back the hands of time. But it could be possible for you to give your kids the gift of compounding and tax-free growth by opening a Roth IRA on their behalf. But how does that compare to the Trump Accounts, which were introduced this summer as retirement vehicle for kids? First, let’s look at how custodial Roth IRAs work, then we’ll see how they compare to Trump Accounts.

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The Rules on Starting a Roth IRA for Kids

Opening a Roth IRA for kids is perfectly legal as long as your child has earned income. Age doesn’t determine eligibility. If your kid is the Gerber Baby, they would qualify as long as their paychecks don’t put them above the Roth IRA income limits.

Your kid is eligible if they make money at a part-time job or they earn income through babysitting, tutoring or odd jobs. However, if they’re earning income from work that doesn’t come with a W-2, check with a tax pro because they could be responsible for Social Security and Medicare taxes.

What’s not allowed: You make up a job for them and say they’re on the family payroll. If you own a business, you’re allowed to employ your minor children, but you have to pay them what the IRS considers a reasonable wage. Paying your teen $10 an hour to do clerical work would probably count as reasonable. But making your 4-year-old a business associate with a $6,000 salary? Not so much.

You’ll need to open a custodial Roth IRA for a minor child. That means they’ll own the account, but as the child’s parent, you’ll make the investment decisions until they reach the age of majority, which is between 18 and 21, depending on the state. Once they reach the age of majority, they’re in control of the money.

Technically, it doesn’t matter who contributes to the account. You’re allowed to fund it, or your child can contribute money they’ve earned. But their contribution is capped at their earned income for the year. So if they earn $6,000 in 2026, that’s their maximum contribution even though someone under 50 can contribute up to $7,500 in 2026.

The great thing about a Roth IRA for kids is that unlike with a traditional IRA, a Roth IRA is funded with post-tax dollars. Your kid probably doesn’t need a tax break now. Minors typically fall into a low tax bracket or their earnings are low enough that they don’t pay taxes at all. By paying any taxes due now, their money will compound for decades. When they reach retirement age, it’s theirs completely tax-free.

Plus, the Roth IRA rules allow you to access the contributions (but not the earnings) any time without taxes or a penalty.

Will a Roth IRA Affect Financial Aid Eligibility?

Retirement account balances don’t affect financial aid eligibility, regardless of whether they belong to the parent or the child.

But withdrawing money from a Roth IRA for tuition will count against financial aid, whether the account belongs to the parent or child. Even if you limit the withdrawal to the contributions — meaning you or your child won’t owe taxes or a penalty on the withdrawal — it will count as income for financial aid purposes.

This can get confusing because the ability to take penalty-free withdrawals for tuition is one of the much-touted Roth IRA benefits. It’s true that using a Roth IRA for tuition won’t result in a 10% IRS penalty if the account is at least 5 years old (though the owner of the account will pay income tax if they touch the earnings). But for many families, the reduction to financial aid simply isn’t worth it. A 529 plan is typically a better bet when college savings is the goal.

Let’s recap all that: Having a Roth IRA in your child’s name won’t affect their college financial aid award. But if they withdraw that money for any reason, they can significantly reduce their financial aid.

What About Trump Accounts?

In July 2026, the Donald Trump administration announced the availability of Trump Accounts, created as part of the president’s sweeping tax bill. Parents, legal guardians, adult siblings and grandparents can create an account for children who are under age 18 and have a Social Security number, but a child can only have one account. On Jan.1 of the year your child turns 18, the account converts into a Traditional IRA, with traditional IRA rules taking effect.

There are a few differences to consider when deciding between a custodial Roth IRA and Trump Account:

• Neither you nor your child can touch the money in a Trump Account until your child turns 18. The account is locked and inaccessible unless the child dies (there’s also an exception for disability). Even when your child turns 18, the rules of a Traditional IRA applies, which means they can’t withdraw money before age 59-1/2 without penalty (although they can convert their Trump Account into a Roth IRA). With a custodial Roth IRA, you can withdraw your original contributions at any time without getting hit with penalties or a tax bill. Although the point is not to touch the money, being able to access your original contributions later could come in handy if your family situation drastically changes or in a financial emergency.
• Your child doesn’t need to be employed to start contributing to a Trump Account. Any adult can contribute to the account of any child under 18, regardless of the child’s employment status. In fact, you can open the account as soon as they’re born (and have a Social Security card). The U.S. government will even contribute $1,000 to a Trump Account for children born between Jan. 1, 2025, and Dec. 31, 2028.
• The maximum annual contribution for a Trump Account is $5,000. That maximum is less than the maximum your child could potentially be eligible to contribute to a Roth IRA — $7,500 in 2026 or 100% of the total income earned. But with a Trump Account, other adults can contribute. A parent’s employer can contribute up to $2,500 per year per employee, for example, although that amount counts toward the total maximum.
• Trump Accounts offer a limited number of investment options. The Treasury Department lists five Exchange-Traded Funds that you can choose from for investing Trump Account funds. Custodial Roth IRAs can invest in the same financial assets as an adult Roth IRA, including ETFs, stocks, mutual funds, bonds and CDs.

If you’re considering a Trump Account as a college savings vehicle, keep in mind: Because the account is subject to the same rules as IRAs when the child turns 18, any money your child withdraws from their Trump Account for college will count as taxable student income on the Free Application for Federal Student Aid, or FAFSA. That means 529s still are likely the better option if you’re using the account to save for college.

However, if your child was/will be born between Jan. 1, 2025 and Dec. 31, 2028, it makes sense to open a Trump Account, even if you never touch it and open a separate Roth IRA. You can simply let the money grow in the account until they’re 18. Beyond that initial benefit, it’s best to weigh whether locking money up in a Trump Account is the best way to invest for your kid.

Should You Open a Roth IRA for Your Kid?

Obviously, the answer depends a lot on your kid. Here’s when a child’s Roth IRA makes sense and when you should avoid it.

Consider a Roth IRA for Your Kid if:

• They’re willing to contribute at least part of their earnings. Sure, you could just throw money into a Roth IRA for your kid, but that won’t teach them the value of investing. A better solution is to match their contributions. You can show them the importance of taking advantage of a 401(k) plan match later on. Plus as their money grows, they’ll see that it pays not to spend every cent.
• You’re OK with them getting control of a nice chunk of change at age 18 or 21. Once your child reaches age 18 or 21, depending on your state, the money is theirs to control. Obviously you can’t predict what your kid will do in the future, especially if they’re young. But if your child is older and they’ve been responsible with money thus far, that’s a good sign they can handle a Roth IRA.
• They don’t need the money for college. Roth IRAs are designed for retirement, not education savings. If the goal is to use the money for college, a 529 plan is a better option.
• You’re willing to manage the account. Because minors need a custodial account, you or another trusted adult will be responsible for the account until they reach majority age.

Don’t Even Think About a Roth IRA for Your Kid if:

• You’re making up a fake job for them on the family payroll so that they’ll be eligible. This is illegal. If your child’s earned income comes from your business, they need to have a legitimate job and a reasonable wage in the eyes of the IRS.
• They’re not willing to chip in. If your kid isn’t interested in contributing their money, they probably aren’t mature enough to have a Roth IRA.
• You think they might withdraw money early. The big reasons to open a Roth IRA for your kid are to give their money extra time to compound and lock in their ultra-low tax rates. But if your child is likely to withdraw the money, they’ll miss out on compound growth. They’ll also pay taxes and a 10% penalty in most cases if they take out the earnings before age 59 ½.
• Your own finances aren’t in shape. If you’re way behind on your own retirement savings, your emergency fund is lacking or you don’t have a good handle on your finances, catching up is your No. 1 focus. Your child has plenty of time to save for retirement. Getting your own finances in shape so you don’t have to depend on your kids when you’re older is a far better gift for your kids than a Roth IRA.

Robin Hartill is a certified financial planner and a former senior writer at The Penny Hoarder. Senior managing editor Tiffany Wendeln Connors updated this post for 2026.

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