Custodial accounts, teen Roth IRAs,
and teaching kids about money.
Custodial accounts (an adult holds investments in a child's name until they turn 18 or 21), Roth IRAs for working teenagers, 529 college-savings plans versus custodial accounts, and the three financial concepts that matter more than anything else schools do not teach.
This page covers personal finance fundamentals that apply regardless of your view on Bitcoin or fiat currency.
If your teen has earned income (summer job, 1099 work, any real job), open a custodial Roth IRA and contribute on their behalf up to their earned income amount. $1,000 invested at 16 grows to approximately $54,000 at 67 at 8% average returns. The time advantage disappears the year they turn 18 if you haven't started. 529 for college savings is better than UTMA because of financial aid treatment. Teach compound interest, the asset/liability distinction, and why cash loses value, in that order.
Custodial accounts (UTMA/UGMA)
Investment accounts you open for a minor. You control until they reach majority (18 or 21 depending on state) verify×DON'T TRUST, VERIFYClaim: UTMA/UGMA transfer age is 18 or 21 depending on state.Verify at: SEC custodial accounts ↗Varies by state. Some allow custodian to extend to 25.. After that, the account is theirs with no restrictions.
Tax: "kiddie tax." Child's unearned income above about $2,500 is taxed at the parent's marginal rate. Not as tax-efficient as a Roth IRA.
- Best for: teaching kids about investing, gifting money with flexibility.
- Not best for college savings: UTMA assets count heavily against financial aid. Use a 529 for that.
- Not best for retirement savings: use a Roth IRA if the child has earned income.
Roth IRA for working teens
If your child has earned income (W-2 job, 1099 work, modeling, acting, babysitting documented properly), they can contribute to a Roth IRA. Contribution limit: lesser of $7,500 or earned income (2026) verify×DON'T TRUST, VERIFYClaim: 2026 Roth IRA limit is $7,500, lesser of earned income.Verify at: IRS IRA limits ↗Annual adjustment..
$1,000 contributed at age 16 at 8% average return to age 67: approximately $54,000.
$5,000 contributed at 16: roughly $270,000 at 67. Every $1 contributed at 16 is worth $54 in today's dollars at retirement (in nominal terms).
The gift approach: you can give the contribution to your child even if they spend their actual paycheck. As long as they have earned income equal to the contribution amount, the contribution is valid. You get to fund your kid's Roth without requiring them to save their summer-job money.
Where to open it: Fidelity Youth Account for under-18, or a custodial Roth IRA at Fidelity or Schwab. Bitcoin in a custodial Roth via IBIT or FBTC: extreme long-term exposure (50+ year horizon) in a tax-free wrapper.
529 vs custodial for college
529 is generally better for college savings. Tax-free growth for qualified education expenses. Minimal financial aid impact compared to UTMA. Can now be rolled into a Roth IRA (up to $35,000 under SECURE 2.0) if not used for education. See 529 Deep Dive.
Teaching kids about money
Three concepts that matter more than anything else:
- Compound interest. Show it visually with real numbers. The compound interest visualizer is built for this. Watching $100/month grow into a six-figure number over decades is a transformative visual for a teenager.
- Assets vs liabilities. Things that pay you (stocks, bonds, rental property, Bitcoin appreciation) vs things that cost you (car payments, credit card debt). Most adults don't understand this distinction.
- Why cash loses value. The purchasing power math. See Purchasing Power. Kids who understand this make different career, saving, and investing decisions.
Age-appropriate approaches:
- Under 10: physical money, spend/save/give jars.
- 10-14: bank account, small investing introduction.
- 14-18 with a job: Roth IRA, how taxes actually work, the order of operations.
Bitcoin for kids: the framing that works is simple. "There will only ever be 21 million Bitcoin. There are 8 billion people. What do you think happens to the price over your lifetime?" Let them reason through it. Don't lecture.
The financial reality of having children
This section exists not to discourage anyone from having children. It exists because most people do not price the decision before making it, which leads to financial stress that could have been planned for.
The USDA's long-running estimate puts the cost of raising one child from birth to age 17 at approximately $300,000 for middle-income families verify×DON'T TRUST, VERIFYClaim: USDA estimated the cost of raising a child born in 2015 to age 17 at approximately $233k (middle-income, 2015 dollars), roughly $300k in today's dollars.Verify at: USDA Expenditures on Children by Families ↗USDA has paused updates to this series; figures are inflation-adjusted from 2015 baseline.. This excludes college costs.
What this does not capture
- Opportunity cost of reduced career advancement during early childcare years
- One-to-two income transition period if one parent reduces work
- Geographic constraints (proximity to family, school districts) that affect housing costs
- Emotional and relationship investment that can affect career focus
What this means for financial planning
- Having children accelerates the need for a deeper emergency fund
- It accelerates the need for life insurance and disability insurance
- It typically reduces the savings rate in early years
- It adds a FIRE constraint: healthcare before Medicare and education costs need separate planning
How to factor it into a FIRE calculation: add estimated annual child costs to your baseline expenses, recalculate your FIRE number, the delta is the financial cost of that specific lifestyle choice. Use the Cost of Living Calculator to model household scenarios with children.
This is not a reason not to have children. It is a reason to plan for them with the same rigor you plan everything else.
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Last updated 2026-04-19. Not financial advice. US-specific accounts.
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