Can You Open a Roth IRA for Someone Else? Here’s What to Know

A Roth IRA is a popular retirement savings account that offers tax-free withdrawals in retirement. Many people wonder if they can open one for someone else, such as a child or spouse, to help them get a head start on saving. While you cannot directly open and own a Roth IRA for another person, there are ways to contribute on their behalf under certain conditions.

Understanding the rules around eligibility, custodial accounts for minors, spousal IRAs, and potential tax implications is essential before moving forward.

Eligibility for Roth IRA Ownership

To contribute to a Roth IRA, an individual must have earned income, including wages, salaries, bonuses, commissions, and self-employment earnings. Passive income, such as dividends, interest, or rental income, does not qualify. The IRS sets annual income limits based on modified adjusted gross income (MAGI), determining whether someone can contribute the full amount, a reduced amount, or nothing at all.

For 2024, single filers with a MAGI below $146,000 can contribute the full amount. Those earning between $146,000 and $161,000 are subject to a phase-out, and individuals exceeding $161,000 are ineligible. Married couples filing jointly can contribute fully if their MAGI is under $230,000, with a phase-out range up to $240,000. These limits are adjusted annually for inflation.

The maximum contribution for 2024 is $7,000 for individuals under 50 and $8,000 for those 50 or older, thanks to a catch-up provision. Contributions must be made with after-tax dollars, meaning they are not deductible, but qualified withdrawals in retirement remain tax-free.

Custodial Arrangements for Minors

Children under 18 cannot open a Roth IRA in their own name, but a parent or guardian can establish a custodial Roth IRA on their behalf. These accounts operate under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), depending on the state. The custodian manages the account until the child reaches adulthood, at which point full control transfers to them.

A minor must have earned income to contribute. Babysitting, lawn care, or working for a family business qualify as long as the child receives legitimate wages and the income is reported to the IRS. Cash payments without proper documentation do not meet the criteria, and the IRS may disallow contributions if income is not substantiated.

Since contributions cannot exceed earned income, a child who makes $3,000 in a year can only contribute up to that amount, even though the maximum limit for Roth IRAs in 2024 is $7,000. Parents or relatives can gift money to fund the account, but the total contribution still cannot exceed the child’s earnings. This allows for an early start on tax-free compounding growth, which can be significant over decades.

Spousal Account Options

A working spouse can contribute to a Roth IRA on behalf of a non-working or lower-earning spouse through what is commonly known as a spousal IRA. This allows a married couple to effectively double their retirement savings potential, even if only one partner has earned income. The IRS permits these contributions as long as the couple files a joint tax return and the working spouse earns at least as much as the total amount contributed to both accounts.

This provision is particularly useful for households where one spouse takes time off work for childcare, education, or other personal reasons. By maintaining contributions during these periods, the non-working spouse continues to build tax-free retirement savings. Since each spouse’s Roth IRA remains individually owned, distributions and tax implications apply separately, providing flexibility in withdrawal strategies.

Income limits still apply, as the couple’s combined MAGI determines eligibility for contributions. If their MAGI falls within the phase-out range, both spouses may face reduced contribution limits. Staying informed of annual IRS updates is necessary to avoid excess contributions, which are subject to a 6% penalty if not corrected in time.

Gift Tax Considerations

When contributing to someone else’s Roth IRA, gift tax rules may come into play depending on the amount given. The IRS sets an annual gift tax exclusion, allowing individuals to give up to $18,000 per recipient in 2024 without triggering reporting requirements. Married couples can combine their exclusions, permitting up to $36,000 in tax-free gifts to a single beneficiary. Exceeding this threshold does not necessarily result in immediate taxation but does require filing Form 709 to track amounts against the lifetime gift and estate tax exemption, which stands at $13.61 million for 2024.

Since Roth IRA contributions must come from the account owner’s funds, gifting money for this purpose requires careful documentation. The recipient must deposit the funds into their own account to comply with IRS regulations. Direct transfers from the giver’s account to the Roth IRA could raise questions about ownership and control, potentially complicating tax treatment. Maintaining clear records of the gift and subsequent contribution helps prevent disputes in the event of an audit.

Funding Logistics

Once a Roth IRA is opened, ensuring contributions are made correctly is important to avoid tax issues or penalties. Because contributions must come from the account holder’s funds, a parent, spouse, or other individual cannot directly deposit money into someone else’s Roth IRA. Instead, they can gift the funds, and the recipient must then transfer them into their account.

Automating contributions through direct transfers from a linked bank account can help maintain consistency and prevent missed opportunities for tax-free growth. Many financial institutions allow scheduled deposits, making it easier to stay within annual limits. If excess contributions occur, they must be withdrawn before the tax filing deadline to avoid a 6% penalty. Proper tracking of deposits and withdrawals is necessary to prevent unintentional violations of contribution rules.