Some years, a kid just doesn't work. Maybe your 14-year-old helped in your business last summer but this year is slammed with school. Maybe your college freshman's campus job fell through. Maybe you started paying your child through the family business but had to pause for a few months and the year slipped away.
Here's the question that follows: does the Roth IRA survive?
TL;DR: A child's Roth IRA is not closed, penalized, or forfeited just because they earned nothing in a given year. The existing money keeps growing tax-free. The only rule is that new contributions in any year cannot exceed that year's earned income. Zero earned income means zero new contributions allowed. Contribute anyway and you owe a 6% excise tax under IRC §4973 for every year the excess sits in the account.
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Written by the Kids Payroll team, grounded in IRC §3121(b)(3)(A) and current IRS guidance on legitimately employing your children in a family business.
The Short Answer: The Account Survives. Contributions Just Pause.
A Roth IRA is not a "use it or lose it" account. There is no rule that says a child must contribute every single year to keep the account active. The IRS does not care how many years pass between contributions, and the account custodian will not close the account because of inactivity.
What the IRS does care about is this: contributions in any given year cannot exceed the lesser of the annual limit or the child's earned income for that year. Under IRC §219(b)(1) and the general Roth IRA rules under IRC §408A, "earned income" means wages, salaries, tips, and net self-employment income. It does not include interest, dividends, gifts, or allowance money.
If earned income is zero, the contribution limit is zero. The account just sits there, quietly compounding. That is not a bad outcome.
What Counts as Earned Income for Roth IRA Purposes?
This is worth spelling out clearly, because parents sometimes confuse it.
Earned income for Roth IRA purposes means money the child actually worked for. A W-2 from the family business counts. A 1099-NEC from freelance work counts (minus the self-employment tax deduction). Babysitting cash, lawn mowing money, or tips from a summer job all count, though you need a paper trail to prove it.
What does NOT count:
- Allowance
- Gifts from grandparents
- Birthday money
- Investment income (dividends, interest, capital gains from a UGMA account)
- Money the parent simply deposits into the Roth without a corresponding W-2
This last point trips people up. You cannot "fund" a Roth IRA for a child by transferring money into it without the child having earned that income first. The source of the cash does not have to be the child's own paycheck (a parent can write the check), but the child must have earned at least that much money during the year. The IRS wants to see the income first, then the contribution.
For a deeper look at how the Roth IRA rules work for minors year-round, the rules for Roth IRAs for kids covers the mechanics start to finish.
The 6% Penalty: What Happens If You Contribute Anyway
Say your child earned nothing in 2025 but you contributed $3,000 to their Roth IRA in January because you thought they'd pick up work later and they never did. Now you have a problem.
Under IRC §4973, an excess Roth IRA contribution is hit with a 6% excise tax for every year it remains in the account. The clock does not stop. If you leave the $3,000 in there for three years without fixing it, you owe 6% each year: $180, then $180 again, then $180 again, plus any applicable penalties on the earnings.
The fix is straightforward but time-sensitive. You must withdraw the excess contribution plus its earnings before the tax filing deadline (including extensions) for the year the excess was made. If you do that, the 6% penalty does not apply. Miss the deadline and you are paying 6% per year until the money comes out.
One practical note: if your child funded the Roth early in the year expecting to earn enough, and the job fell through, catch it before April 15 (or October 15 with an extension). The custodian will calculate the earnings portion for you.
A Worked Example: The Gap Year and Its Real Cost
Here is a concrete scenario to make this tangible.
Assumptions:
- Emma, age 15, has worked in her mom's photography business for three years.
- She has $14,000 already sitting in her Roth IRA from prior contributions.
- In 2025, Emma earns zero because she chose to focus on AP classes.
- Her parents contribute $0 to her Roth in 2025 (correct move).
- Her existing balance grows at an average 8% annual return.
What happens to the $14,000 in the gap year?
$14,000 × 1.08 = $15,120 at year end.
Emma gained $1,120 in tax-free growth without touching the account or contributing a single dollar. Nobody penalized her. Nobody closed the account.
Now compare: what if the parents had contributed $3,000 anyway?
Excess contribution: $3,000. Penalty: $3,000 × 6% = $180 in year one. If they miss the deadline and leave it in for two years: $360 total, plus any earnings on the excess must also come out. Avoidable, but real money.
The bigger picture. Emma resumes working at 16, earns $6,000, and contributes $6,000. At that point her balance is roughly $16,330 (the $15,120 growing another year). She is back on track. One gap year does not ruin a Roth. Compounding is patient.
Can You "Make Up" a Missed Year Later?
No. Roth IRA contributions are not retroactive. You cannot contribute $15,000 in a good-income year to cover the year Emma earned nothing. Each year's contribution limit is its own window, and it closes on the tax filing deadline for that year.
This is different from some retirement accounts that allow catch-up provisions for older workers. For minors, each year stands alone.
What If the Child Earns a Small Amount?
Partial earned income means a partial contribution is still possible. If your child picks up $800 babysitting one summer, they can contribute up to $800 to the Roth IRA for that year. It is not all-or-nothing.
Small contributions add up. $800 invested at age 14 has roughly 50 years to grow before traditional retirement age. At 8% average annual return, that $800 becomes approximately $18,700 by age 64. That is the power of starting early, even in a low-income year.
If you are weighing whether a Roth IRA is even the right account for a child versus a taxable custodial account, the comparison between a Roth IRA vs. a UGMA account for kids lays out the tradeoffs clearly.
What About the Year the Child Stops Working Permanently?
Some parents ask about older teens who stop working at 18 or leave the family business. Same rules apply. The account stays open indefinitely. Roth IRAs have no required minimum distributions during the owner's lifetime under IRC §408A(c)(5). The money is the child's. It keeps growing. When they land their first "real" job in their 20s, they can start contributing again.
The only scenario where the Roth IRA gets complicated is if the child later receives a college scholarship and you are wondering whether that changes anything. Scholarships are generally not earned income, so they do not create Roth IRA eligibility on their own. But there are some nuances worth knowing about, which the Roth IRA, college scholarships, and financial aid post covers in detail.
Keep the Roth Pipeline Open with Kids Payroll
The simplest way to avoid gap years is putting your child on legitimate payroll in your family business. Even modest, documented wages keep the Roth contribution window open every single year.
Kids Payroll makes that easy. The app is built specifically for parents who want to pay their kids the right way, with proper documentation that satisfies the IRS under IRC §3121(b)(3)(A). No guesswork, no spreadsheets, no scrambling at tax time.
Ready to keep your child's Roth IRA funded year after year? Download the Kids Payroll app and get started today.
Key Takeaways
- A Roth IRA is not forfeited or penalized simply because no contribution is made in a given year.
- New contributions in any year cannot exceed that year's earned income, per IRC §408A and IRC §219(b)(1).
- Contributing more than earned income triggers a 6% annual excise tax under IRC §4973 until corrected.
- The fix is removing the excess plus earnings before the filing deadline.
- Prior contributions and their growth are completely unaffected by a gap year.
- You cannot retroactively make up a missed year's contribution.
FAQ
Does a child's Roth IRA get closed if they don't contribute for several years? No. Roth IRA accounts do not close due to inactivity or missed contribution years. The existing balance stays in the account and continues to grow tax-free. There is no IRS rule requiring annual contributions.
What is the penalty for contributing to a child's Roth IRA when they have no earned income? The excess contribution is subject to a 6% excise tax per year under IRC §4973 for every year it remains in the account. Remove the excess plus its earnings before the tax filing deadline for the year of the contribution and the penalty does not apply.
Can a parent fund the Roth IRA even if the child doesn't earn the money themselves? A parent can write the check, but the child must have actually earned at least that amount during the year. The money's source does not matter; the child's earned income does. If the child earned $2,000 and the parent deposits $2,000 into the Roth, that is fine. If the child earned nothing, no contribution is allowed, regardless of who provides the funds.
Does unearned income, like dividends from a UGMA account, count toward Roth IRA eligibility? No. Dividends, interest, and capital gains are unearned income and do not create Roth IRA eligibility. Only wages, tips, and net self-employment earnings count as earned income for contribution purposes.
Can a child resume Roth IRA contributions after a gap year? Yes, without any penalty or special process. When the child earns income again, they can contribute up to the lesser of that year's earned income or the annual limit. The gap year is simply treated as if it never happened, other than the missed compounding opportunity.
Bottom Line
Your child's Roth IRA is safe. A year without income means a year without new contributions. That is it. The account does not close, the prior balance does not shrink, and no penalty applies to the existing money. The one thing to watch is whether you already made a contribution before the income dried up. If you did, fix it before the filing deadline by pulling out the excess and its earnings. Catch it in time and the penalty is zero.
If you want to make sure there are no more gap years, the cleanest move is putting your child on payroll in your business under IRC §3121(b)(3)(A). Even modest, documented wages keep the Roth pipeline open and the IRS completely satisfied.
Sources
- IRC §408A, Roth IRAs
- IRC §219(b)(1), IRA Contribution Limits
- IRC §4973, Excise Tax on Excess IRA Contributions
- IRC §3121(b)(3)(A), FICA Exemption for Child Employed by Parent
- IRS Publication 590-A, Contributions to Individual Retirement Arrangements
- IRS Publication 590-B, Distributions from Individual Retirement Arrangements
This article is for educational purposes only and is not tax or legal advice. Consult a qualified CPA before putting your kids on payroll.