Funding a custodial Roth IRA

[jyeh74]

When you want to fund a custodial Roth IRA for a child, does the bank information have to be the child's or can it be the parent's?  Or does it not matter either way?

[macuser_22]

It must be the child's and it can only be funded with the child's own taxable compensation.    W-2 wages or self-employed income.  Income from gifts are not taxable compensation.

If "you" want to fund it then just open a bank or brokerage account, not an IRA.

The most you can contribute to all of your traditional and Roth IRAs is the smaller of:

For 2019 and 2020, $6,000, or $7,000 if you’re age 50 or older by the end of the year; or
your taxable compensation for the year.

(Taxable compensation is generally wages that you worked for - W-2 or net self-employed income minus the deducible part of the SE tax, but can include commissions, certain alimony and separate maintenance, and nontaxable combat pay ).

See IRS Pub 590A "What is compensation" for details:
https://www.irs.gov/publications/p590a#en_US_2018_publink1000230355

[jyeh74]

@macuser_22 , thanks for confirming.  Child is a household employee and doing chores for parent.  Child will get paid for doing chores around the house.  Payment will be from parents directly to the child.  Sometimes in cash or direct deposited into the child's bank account.  That is still considered earned income because its not a gift.  Amount will be under the $6000 annual limit.

I wanted to confirm because brokerage firm said that parent's bank account can be linked or the child's bank account can be linked..........said either one is ok.