Does A 3-Year-Old Receiving Payments From A Medical Study Qualify For A Roth IRA? Here's What Suze Orman Says

Opening a Roth IRA early in life can lead to significant long-term benefits, thanks to the power of compound growth. Some parents even look into setting one up for their children—but not every type of income qualifies. On a recent episode of the "Women & Money" podcast, Suze Orman addressed a listener question that highlights a common point of confusion.

The Listener Question: Is Medical Study Pay "Earned Income"?

A listener named Clay asked whether his 3-year-old daughter could open a Roth IRA using payments she received from participating in a medical study. The study, conducted through her pediatrician, involved simply monitoring the child after she received routine vaccinations.

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Orman's co-host, KT, clarified that the payment was sponsored by a medical group and was being issued in the child's name. But the big question was whether that kind of compensation qualified as earned income, which is required to contribute to a Roth IRA.

Suze Orman's Answer: It Doesn't Count

Orman responded with a quick quiz for KT: "Does it qualify for a Roth as earned income?" 

KT answered, "No," and Suze confirmed, "Right. So it's taxable… but not earned income."

According to Orman, earned income means you've worked for the money. She drew a comparison to gambling: you might win money in Vegas and pay taxes on it, but that still doesn't make it earned income in the eyes of the IRS. 

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What the IRS Considers Earned Income

The IRS has specific rules about what qualifies as earned income for the purpose of IRA contributions. According to IRS guidelines and financial education platforms like Investopedia, earned income includes:

• Wages, salaries, tips, and bonuses
• Self-employment income
• Certain scholarship or fellowship payments that are taxable
• Taxable alimony (from agreements before 2019)
• Nontaxable combat pay (for military members)

In contrast, payments received passively or without active labor—like interest, dividends, rental income, and payments for participation in a medical study—do not qualify as earned income, even if they're taxable.

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Roth IRA Options for Minors

Children can have Roth IRAs, but only if they have qualifying earned income. In many cases, this might come from a part-time job, working for a family business, or offering services like babysitting or lawn care — as long as it’s properly documented.

For minors with no earned income, a Roth IRA isn’t an option yet. However, families can explore spousal IRAs if one parent doesn't work, or wait until the child is old enough to earn income through employment or self-employment.

The Bottom Line

Receiving compensation from a medical study may sound like income, but according to Suze Orman — and the IRS — it doesn't meet the definition of earned income needed to contribute to a Roth IRA. If you're thinking about starting a retirement account for your child, make sure their earnings qualify under IRS guidelines.

When in doubt, consult a tax professional or financial advisor to ensure you're setting up the account correctly — and legally.

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