I posted recently about the benefits as a business owner of hiring your kids to work in your business. When I speak with clients about this, one of the push backs I get is, “I wouldn’t be able to pay them that much…” While that may be true in terms of today’s dollars, I want to show you how even paying your child a little and putting all of that into a ROTH IRA can have huge impact on your child’s financial future!
Maxing Out Your Child’s ROTH IRA:
- As many of you know, the benefit of the ROTH IRA is that you pay taxes on the money when you contribute it to the account, but then it grows tax free & can be withdrawn in retirement tax free
- A person needs to have “earned income” to contribute to a ROTH. So unfortunately earnings from investments or gifts to the child cannot be used.
- For children who’s income is below the standard deduction ($15,750 for single filers in 2025), they essentially will be paying 0% Federal Income taxes on the money they put into the ROTH IRA (note: they will still be paying payroll taxes & may be paying state taxes, but for most, Federal Income Tax tends to be the largest tax they have, so eliminating that is immensely helpful)
- When you take those contributions to the ROTH and add in compound interest, you’re really giving your child a major financial advantage!
Example 1:
- Let’s say that you hire your child in your business when they’re 14 & they work for you until they graduate college at 21
- Each year they contribute $3,500 to a ROTH
- They earn an average return of 8% annually
- They retire at age 60
- If they just did that and never contributed to a retirement account again, they would have $749,000 when they retired!
Example 2:
- Let’s take the same facts as before, but this time they maxed out their ROTH, and contribute $7,000/yr
- At age 60 they would have $1,498,000!
Example 3:
- Let’s take the same facts as example 2, but this time they continue to contribute $7K/yr to their ROTH every year until they retire. Your child would have $3,170,000 at 60!
So yes, your child may only earn a few thousand dollars a year—but with the power of a Roth IRA and compound interest, that “small” income can translate into millions over a lifetime. You’re not just teaching them to work—you’re helping them build wealth, think long-term, and take advantage of one of the most powerful tools in the tax code. It’s a gift that lasts far beyond the paycheck.
