Introduction to custodial IRAs

Introduction to custodial IRAs

A custodial individual retirement account (IRA) is a retirement account, established by an adult, for minors with earned income, which allows savings to grow either tax-free or tax-deferred. Custodial IRAs shelter contributions, earnings and distributions from taxation; the specific tax advantages depend on whether the custodial IRA is set up as a traditional or Roth IRA.

A custodial IRA may be established as a traditional IRA or Roth IRA, and is managed by a parent or guardian until the minor reaches termination age, at which time assets are turned over to the minor, saved for retirement, or used earlier for qualified reasons..

Key information related to custodial IRAs:

  • Custodian must be at least 18 years of age and is responsible for adhering to all laws that apply in the relevant state and/or locality
  • Minor must have earned income
  • Minor’s Social Security Number required
  • Only one custodian (must be at least age 18) and one minor allowed per account
Income limitations There are income limitations on traditional custodial IRA contributions. Limitations apply based on Modified Adjusted Gross Income (MAGI) for Roth and custodial IRAs and may impact tax deductibility for contributions to these accounts and traditional IRAs.
Rollovers Rollovers from another custodial IRA or qualified plan are allowed, as long as the age of termination is the same. Only after-tax money from a qualified plan may be rolled into a custodial IRA.


  • Contributions can be made until minor reaches age of termination and are subject to contribution limits
  • Minor’s earned income must be at least equal to the contribution amount
  • Contributions are reported on IRS Form 5498
  • Deadline of April 15 (for the following year)


Tax advantages

Traditional IRA

Roth IRA

  • Contributions may be tax-deductible
  • Earnings are tax-deferred
  • Earnings are tax-free
  • Qualified withdrawals are tax-free
  • Income limits

For information regarding account termination, see the following:

Custodial accounts are restricted once the custodial beneficiary reaches the termination age. Upon restriction:

  • Custodians and investment advisors lose the ability to place buy orders and deposit/withdraw funds; investment advisors can no longer charge management fees; and account features such as Schwab MoneyLink® are disabled.
  • If no action is taken within 90 days, the account is converted into an individual (or IRA, as applicable) account in the name of the custodial beneficiary. The account number will remain the same, but the account will be treated as missing document–restricted pending conversion/disbursement instructions from the beneficiary.

To remove the restriction on the account, the custodial beneficiary must either:

When can a custodial IRA be established?
When the minor begins to receive earned income. Federal law stipulates the contribution be equal to or less than the minor's earned income.

Does Schwab report custodial IRA contributions?
Yes. The IRS requires Schwab to report contributions to a custodial IRA on IRS form 5498 by May 31.

At what age must contributions stop?
Contributions can be made until minor reaches age of termination.

Can a financial advisor be added to a custodial account?
Any registered financial advisor (whether with Schwab Advisor Services™ or otherwise) can be added to a custodial account. Advisors who have master accounts on the Schwab Advisor Services platform can be added to an account. See How to add power of attorney to an account. Custodians can’t assign a spouse or other third-party as a Power of Attorney.

The following are available to assist you:

How to add a power of attorney to an account
How to convert accounts
How to open a 529 College Savings Plan
How to open a custodial IRA
How to open an inherited IRA
How to roll over assets to a Schwab account
Introduction to custodial accounts
Introduction to education savings accounts
Introduction to householding
Introduction to inherited IRAs
Introduction to Roth IRAs
Introduction to traditional IRAs

Account Application Addendum
IRA Analyzer
IRA Comparisons
State Income Tax Withholding Information for Individual Retirement Accounts
Transfer of Account Form Instructions (TOA / Account Transfer)

For more information about cash features, pricing, and plan agreements, see: