How Much Should I Contribute to My Child's Roth IRA in 2023?

Contributing to a Roth IRA (individual retirement account) on behalf of your offspring while they are still children may not be a top-of-mind priority for most parents, but it's one of the best moves you can make to help your child learn about the power of investing. If your child has earned income, now is the time to think about how Roth IRA contributions could help set them up for long-term financial security. 

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Share the benefits of a Roth IRA 

For anyone who qualifies to fund one, a Roth IRA can be used to create a source of income you can tap during retirement. The contributions made to those accounts are after-tax dollars -- the government gets its cut during the year you earned the money -- but your investments, in whatever assets you choose, grow tax free, and your withdrawals in retirement are likewise tax free. 

Your child most likely won't be able to open a Roth IRA on their own, so they'll need you or another adult to open a custodial account on their behalf. A minor's Roth IRA must be managed by an adult until they are legally able to manage it on their own. But if you open an account for your child, get them involved in the process so they can understand how it works and why it matters.

Determine your child's Roth IRA contribution limit 

Roth IRAs are loaded with benefits, but the person whose account it is needs to have earned income in order to make contributions to it -- and in this case, that's your child. That income could come from a summer job, acting gigs, modeling, or any other type of wage or self-employment income. 

After you confirm that your child has earned income, then you'll want to calculate the amount of money they received during the year. This will help you determine how much you and your child will be eligible to contribute to the account. 

For 2023, a person can contribute up to $6,500 to an IRA -- and you can do that on behalf of your child. But the other limiting factor is how much the account owner earned. So, if your child only earned $4,000 from their summer job, you can only contribute $4,000 to their Roth IRA. And you can only contribute the $6,500 maximum amount to a Roth IRA if your child's earned income equals or exceeds that amount. It's a good idea to talk to a tax professional to ensure you have the right records to prove your child's work status. 

Develop a monthly Roth IRA contribution plan

There's no minimum requirement for contributing to a Roth IRA, but it's a good idea to contribute as much as you can while the option is available. If your child earns too much money per year in the future, you won't be able to make direct contributions to a Roth IRA on their behalf. This typically isn't an issue children face -- it's more likely to impact high-earning adults -- but it's important to review the annual income requirements to ensure your child qualifies to make Roth IRA contributions. 

The table below shows how a steady pattern of monthly contributions can get you to your annual contribution goal. It's important to talk to your child about their future goals and how small contributions every month can help them get closer to what they seek. Let's say you contribute $500 per month to a Roth IRA when your child is 8 years old. At age 13, your child will have $30,000 worth of contributions that can be multiplied over time through their long-term investments. 

If you want to contribute the maximum amount ($6,500) to your child's Roth IRA in 2023, you can stash away roughly $542 every month for 12 months. 

If these numbers are unrealistic based on your financial situation, consider starting with a smaller amount and then increasing your contributions when it makes sense for you. You can also set up an arrangement with your child where you match whatever contributions they make to the account to encourage them to allocate more money to it. The more you -- and they -- contribute to the account, the more money they will be able to invest in assets that can grow in value over time. 

Help your child crush their retirement goals 

Although an adult will manage the Roth IRA, it's useful to expose children to every part of the process. Let them know how their contributions work, encourage them to set aside funds for the account, let them collaborate on decisions about what that money should be invested in, and encourage them to keep track of how their investments and their portfolio are growing. The more you and your child contribute toward their Roth IRA now, the easier it will be for your child to reach their financial freedom and retirement goals later.