" Can I open a Roth IRA for my child?" This is a great question, and the answer is yes, a Roth IRA may be established for the benefit of a minor child or for anyone else lacking legal capacity. Being able to contribute to a Roth IRA at an early age can provide a great boost to retirement preparedness, given the extra years of growth provided in the account.
Keep in mind that, like everyone else, the child must have earned income to be able to contribute to a Roth IRA, and for 2018 they could contribute up to the lesser of $5,500 or 100% of earned income. For example, if a minor child made $1,000 mowing lawns, they could contribute up to $1,000 to their Roth IRA. In another example, if a minor child made $7,000 in 2018 through modeling, they could contribute up to $5,500. Going back to the first example; let’s say the child had the earned income of $1,000, but after deducting the maintenance and gas for the mower, was only able to keep $800 of what they earned. A parent could gift the $200 to the child to enable them to contribute the full $1,000 to their Roth IRA.
A couple of other things to keep in mind about minor children owning Roth IRAs
In the unlikely, but possible, event your child earned between $120,000 and $135,000, they would be phased out of being able to contribute to a Roth IRA.
A child’s Roth IRA account is not included in the Federal Financial Aid calculation. However, non-qualified distributions made from the Roth account are reported as income on the application and could affect a child's financial aid in the year after they take the distribution.