Can I Open an IRA for My Adult Child?

It is a common question whether a parent can open an Individual Retirement Account (IRA) for an adult child. While a parent cannot directly establish an IRA in their adult child’s name, they can certainly provide financial support to help their child save for retirement through an IRA. Understanding the specific rules governing these accounts is important for parents wishing to assist their children in building a secure financial future. IRAs are inherently individual accounts, meaning the account holder must be the one to initiate and maintain the account.

Who Can Open an Individual Retirement Account?

An Individual Retirement Account is an account owned and controlled by a single individual. A parent, therefore, cannot legally open an IRA in their adult child’s name or on their behalf with a financial institution.

The adult child must personally engage with a financial institution to complete the necessary paperwork and fulfill the requirements for opening an IRA. This process typically involves providing personal identification, such as a Social Security number, and signing the account agreement. The individual nature of the IRA ensures that the account holder retains full control over investment decisions and distributions.

This distinction between account ownership and the source of funds is a fundamental aspect of IRA regulations. While parents cannot act as account openers, their financial assistance can still play a role in funding the account.

Providing Funds for an Adult Child’s Individual Retirement Account

While parents cannot directly open an IRA for an adult child, they can provide financial assistance that enables the child to contribute to their own account. The most common method involves the parent directly giving funds to the adult child, who then deposits them into their existing or newly opened IRA.

This transfer of funds can occur through various practical means, such as a check, direct bank transfer, or even cash. The key aspect is that the contribution to the IRA is legally considered to be made by the child, even if the money initially came from the parent. The child is responsible for ensuring that the contribution adheres to all applicable IRA rules and limitations.

For instance, if a parent gives their adult child $5,000, the child would then deposit that $5,000 into their IRA. The financial institution records the contribution as originating from the child, not the parent. This mechanism allows parents to support their child’s retirement savings efforts while remaining compliant with tax regulations.

Key Requirements for Individual Retirement Account Contributions

For an adult child to contribute to an IRA, several criteria must be met, regardless of whether the funds originate from the child’s earnings or a parent’s gift. A primary requirement is that the individual must have “earned income” at least equal to the amount they contribute to their IRA for the year. Earned income includes wages, salaries, tips, commissions, and net earnings from self-employment. Investment income, unemployment benefits, or Social Security benefits do not qualify as earned income for IRA contribution purposes.

There are specific annual limits on how much an individual can contribute to an IRA each year. For 2025, the maximum amount an individual under age 50 can contribute to an IRA is $7,000. Individuals aged 50 and over are permitted to make an additional “catch-up” contribution of $1,000, bringing their total annual contribution limit to $8,000 for 2025. These limits apply to the adult child’s total contributions across all their IRAs, not to the parent’s contributions.

When a parent provides funds to an adult child for an IRA contribution, it is legally considered a gift. The Internal Revenue Service (IRS) sets an annual gift tax exclusion amount, which allows individuals to give a certain sum to any number of recipients each year without incurring gift tax or requiring a gift tax return. For 2025, this annual gift tax exclusion is $19,000 per recipient. Most parental contributions for an IRA will fall within this exclusion, meaning neither the parent nor the child will face gift tax implications.

The adult child will also need to choose between a Traditional IRA and a Roth IRA, a decision that affects their personal tax situation. Contributions to a Traditional IRA may be tax-deductible in the year they are made, with withdrawals taxed in retirement. In contrast, contributions to a Roth IRA are made with after-tax dollars, and qualified withdrawals in retirement are tax-free. The choice between these two IRA types depends on the child’s individual financial circumstances and tax planning preferences, and it is a decision made by the child as the account holder.