Pay your kids through your business and turn their wages into Roth IRA wealth
Hire your kids, deduct their wages as a business expense, and use their earned income to fund a Roth IRA. Done right, you can lower your tax bill while giving your children a decades-long head start on retirement.
Main tax law
Section 408A of the Internal Revenue Code (Roth IRAs)
How to use it
Find work your kids can actually do
Own a business? Your kids might be able to help with advertising, modeling for product photos, appearing in promotional videos, organizing files, or other age-appropriate tasks. For example, if your business needs photos for its website, hiring your child as a model could be legitimate work. The key is that the business actually uses the photos and the pay reflects the value of the work.
Pay them through your business
Pay a reasonable rate for the work performed and document it. Keep records of hours, tasks, deliverables, and payments. The wages are generally a deductible business expense, reducing your business's taxable profit. Bonus: if you operate a sole proprietorship, wages paid to your child under 18 are generally exempt from Social Security and Medicare taxes, and wages paid to your child under 21 are generally exempt from federal unemployment tax. These exemptions generally don't apply when the child works for a corporation, including an S corporation.
Put their earnings into a Roth IRA
Your child can contribute to a Roth IRA up to the annual contribution limit or their eligible earned income, whichever is less. For example, if your child earns $6,000 from legitimate work, they could generally contribute up to $6,000 to a Roth IRA, subject to the applicable rules. They don't need to use the exact dollars from their paycheck. You can provide the money for the contribution, as long as your child has sufficient eligible compensation.
Let decades of compounding do the work
Imagine contributing $6,000 annually for 10 years, starting when your child is young. That's $60,000 contributed before investment growth. If the investments then remain invested for decades, the account could grow substantially. Qualified Roth IRA withdrawals in retirement can be tax-free. Meanwhile, your business has deducted legitimate wages, and your child has started building retirement wealth.
Official tax rules & sources
Applies to
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- CounterpointCommunity Member · Oct 16, 2026
One catch: this works best for sole proprietors. S-corps generally still owe payroll taxes on wages paid to your kids, which can eat into the savings. And the work has to be real and reasonably paid not just a paper deduction. If you already have a business that can legitimately use your kids, though, it's definitely worth looking into.
IRS - Family Employees · read the source