530A vs. custodial Roth IRA
One requires a paycheck; one requires a birth certificate. That's the heart of it.
| 530A account | Custodial Roth IRA | |
|---|---|---|
| Who can have one | Any citizen child with an SSN (enrolled before 18) | Only kids with earned income (job, self-employment) |
| Contribution limit | $5,000/yr combined, any source | Lesser of the child's earned income or IRS annual IRA limit |
| Free money | $1,000 federal seed (2025–2028 births); Dell $250 for some | None |
| Growth taxed? | Withdrawals = ordinary income minus basis | Qualified withdrawals 100% tax-free (after 59½) |
| Early access | Locked until 18, then IRA rules | Contributions withdrawable anytime tax-free; earnings restricted |
| Investment choice | S&P 500 index ETF (default) | Nearly anything the brokerage offers |
| Control at 18/21 | Child at 18 | Child at age of majority (18–21 by state) |
Same dollars, both wrappers
The earned-income rule changes everything
A custodial Roth IRA accepts after-tax contributions, and qualified retirement withdrawals are tax-free. However, a Roth requires earned income. A child can contribute only if they have legitimate, documented earnings, and the contribution cannot exceed that income. A 530A does not require earned income, so contributions can begin earlier. Eligible children born from 2025 through 2028 may also receive the $1,000 federal deposit.
A Roth generally has better tax treatment. Qualified withdrawals are tax-free, while a 530A withdrawal is generally taxed as ordinary income minus after-tax basis. You can compare the numbers in the tax estimator. The accounts also have different eligibility rules. A 530A can accept contributions before a child has earned income, while Roth contributions cannot exceed the child's earned income. Grandparents and employers may also contribute to a 530A.
The pattern many families land on isn't either/or; it's sequence: 530A from birth (free seed, no requirements), then a custodial Roth once teenage earnings arrive, and at 18, the 530A itself continues under traditional IRA rules if left alone. Check what your child qualifies for with the eligibility checker, project the long-run in the growth calculator, and if education money is the goal, read 530A vs. 529 too. As always: trade-offs shown, advice not given.
Compare the decision in the right order
First ask whether the child has eligible earned income. Without it, the Roth contribution decision may not exist for that year, while a 530A contribution can still be possible. If earned income exists, compare the permitted contribution with the child’s actual compensation and the current IRA limit rather than assuming the maximum shown in an example is available. Then decide whether the money is intended primarily for retirement or for the broader set of uses that may apply after the 530A growth period.
Tax timing also differs. Roth contributions generally use after-tax dollars and qualified withdrawals can be tax-free when the requirements are satisfied. A 530A generally defers tax, with taxable amounts treated under the applicable post-growth-period rules. The simple projections on this page do not capture every exception, penalty, deduction, or future rate. Compare after-tax outcomes, not just ending balances.
When using both can make sense
A working teenager might direct earned-income-based savings to a custodial Roth while retaining a 530A that received a seed or employer contribution. The accounts then have different jobs: one emphasizes retirement treatment and the other preserves the 530A benefit and investment path. Using both does not remove either account’s limits, documentation requirements, or ownership rules.
For example, a child earning $3,000 cannot justify a Roth contribution based on $6,000 of family cash simply because a relative is willing to provide the money; the earned-income constraint still matters. Separately, all ordinary personal and employer deposits into the child’s 530A must be coordinated under its shared cap. Keep pay records, contribution confirmations, and year-end statements for both accounts.
Control and access deserve equal weight
Both structures are for the child, but the withdrawal pathways and tax consequences differ. Before contributing, discuss what happens when the child gains control, what records will transfer with the account, and how the money fits the child’s longer-term plan. If the choice depends on a specific withdrawal or tax exception, verify that exception in current IRS guidance or with a tax professional.