The limits at a glance
| Source of money | 2026 limit | Notes |
|---|---|---|
| All individuals combined (you, family, friends) | $5,000 / child / year | Total cap across everyone; indexed to inflation after 2027 |
| Employer (Section 128) | Up to $2,500 / year | Tax-free to the employee; counts inside the $5,000 cap, not on top |
| Federal pilot seed | $1,000 one-time | Eligible U.S. citizens born 2025–2028; does not count toward the $5,000 |
| Charities / government | Varies | "Qualified general contributions" to defined groups of children |
How the $5,000 cap actually works
The $5,000 is a combined ceiling per child, not per contributor. If you put in $3,000 and grandparents add $2,000, you've hit the cap — no one else can contribute that year. If your employer puts in $2,500, that leaves $2,500 of room for everyone else combined.
- Per child, not per parent. Each child has their own $5,000 limit. Three kids = three separate $5,000 caps (and three $1,000 seeds if all are eligible).
- The $1,000 seed is bonus. It sits on top of the $5,000 — so an eligible newborn could see $6,000 in year one ($1,000 seed + $5,000 contributions).
- Indexed after 2027. The $5,000 and $2,500 figures rise with inflation starting after 2027, so expect them to creep up over time.
- Not tax-deductible. Unlike a traditional IRA, your contributions don't lower your taxable income. The employer's $2,500 is the only "pre-tax" money in the picture.
Want to see what hitting the cap every year does over 18 years? Run it in the calculator — max contributions can push the balance past $180,000.
Common questions
Does the $1,000 seed count toward the $5,000?
No — it's separate. Eligible children get the $1,000 on top of the annual cap.
Can I contribute for a child born before 2025?
Yes. Any child under 18 can have an account and receive up to $5,000/year — they just don't get the $1,000 federal seed. Check eligibility.
What if too much is contributed?
Excess contributions over the annual limit are treated like other IRA excess contributions and generally must be corrected to avoid a penalty. Coordinate with whoever else is contributing so the total stays at or under $5,000.
Is the employer $2,500 really free money?
Effectively yes — it's excluded from your taxable wages. At a 22% rate, $2,500 in the account would otherwise cost about $3,205 of pre-tax salary. See the employer benefit.