Why Parents Are Opening Roth IRAs for 8-Year-Olds

Core Insights - More U.S. parents are establishing custodial Roth IRAs for their young children, leveraging favorable tax rules and long time horizons to secure their financial future [2][3] - A custodial Roth IRA allows contributions from a child's earned income, with a contribution limit of either the child's earned income or $7,500 for 2026 [4] Benefits of Custodial Roth IRAs - Compound Growth: Contributions made at a young age can grow significantly over time due to compound interest, potentially benefiting the child for over 50 years [5] - Tax-Free Growth on Withdrawals: Qualified earnings can be withdrawn tax-free in retirement, providing future income without tax implications [6] - Tax Strategy and Flexibility: Children often face low tax rates, making it advantageous to pay taxes now rather than later when they may earn more [7] - Financial Education: Establishing this account serves as a practical lesson in earned income, investing, and long-term financial planning for children [8]