Hiring Your Kids? A Roth IRA Might Be the Best Benefit You're Not Offering

If your kids help out in your business, you're probably already paying them something. But here's a question worth asking: are you making the most of that arrangement?

Contributing to a Roth IRA as part of a child's compensation is one of the more overlooked strategies in family business planning. It's not complicated. And the long-term payoff, for your child, can be significant.

How It Works

To contribute to a Roth IRA, a person must have earned income. A child who works in your business and receives reasonable wages for actual work qualifies. That's the door opener.

From there, the math works in your favor. Children are typically in the lowest tax brackets, which means the income is taxed at a minimal rate before it goes into the account. Inside the Roth IRA, it grows tax-free. Withdrawals in retirement are tax-free as well. For someone with decades ahead of them, that's a powerful combination.

It's Not Just a Retirement Account

A lot of people don't realize that Roth IRA funds have uses before age 59½. Your child can draw on contributions (not earnings) at any time without penalty. Beyond that, Roth IRA funds can be used for a first home purchase, qualified education expenses, and certain medical costs — all without the usual early withdrawal penalties.

Open an account when a child is 10 or 12, contribute consistently through their teenage years, and by the time they're in their late twenties, they could have a meaningful sum for a down payment, tuition, or just a financial cushion most young adults don't have.

What You Need to Get Right

This only works if it's done legitimately. The child needs to do real work appropriate for their age and skill level. Think filing, cleaning, data entry, or helping run errands. The wage needs to be reasonable for the work performed. You'll pay them through payroll, just like any other employee, and keep proper records.

Done right, this holds up. Done sloppily, it draws IRS attention. I can help you structure it correctly.

The Bottom Line

This strategy isn't glamorous, but it's effective. It gives your child a financial foundation most of their peers won't have, it teaches them the value of work and saving, and it takes advantage of a tax structure that strongly favors people in low brackets.

If you own a small business and your kids are old enough to help out, it's worth a conversation. Reach out and we'll look at whether this makes sense for your family.