What is a Custodial IRA?
A custodial IRA is a retirement account established and managed by an adult custodian on behalf of a minor child who has earned income, allowing tax-advantaged retirement savings to begin during childhood. The custodian maintains legal control over the account until the minor reaches the age of majority (typically 18 or 21, depending on the state), at which point ownership transfers automatically to the child. Custodial IRAs can be structured as either a Traditional 401k, with contribution limits matching those of adult IRAs but capped at the child's total earned income for the year. These accounts provide decades of potential compound growth and create opportunities for parents to teach financial literacy while building substantial retirement wealth through Child traditional IRA contributions that grow tax-free.
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