Your Child's Roth IRA
A child who earns real wages can contribute to a Roth IRA, and every dollar grows tax-free for decades. Illustratively, $7,500 a year from ages 15 to 22, $60,000 in total, could be worth about $1.4 million at 65 at a 7% return, all of it tax-free. If the wages come from your own business, you may deduct them as well.
Reviewed by Ebot Mbi, CPA, EA · Last reviewed October 9, 2026
Who it fits
- Parents who own a business with real work a teenager can do: filing, cleaning, social media, data entry, modeling in marketing materials
- Families whose children have outside jobs and can contribute their own earnings
- Parents in high brackets who would otherwise give the child the same money after tax
- Families thinking in decades, not years
Who it's not for
- Children with no earned income. Allowance, gifts and investment income do not count
- Arrangements where the child does no real work or is paid far above market rate for the job
- Families who will need the money within a few years for something other than a Roth-eligible use
How it works
A Roth IRA contribution is limited to the lesser of the annual limit, $7,500 for 2026, or the person's earned income for the year. Age does not matter. A 15-year-old with $7,500 of wages can contribute $7,500. The account is opened as a custodial Roth IRA, with a parent managing it until the child reaches adulthood.
The child usually pays no income tax on the wages. A dependent's standard deduction covers earned income up to the full $16,100 single standard deduction, so a teen earning $7,500 owes nothing federally.
If the parent owns a sole proprietorship, or a partnership owned only by the parents, wages paid to a child under 18 are exempt from Social Security and Medicare tax, and exempt from federal unemployment tax until 21. The business deducts the wages. That exemption does not apply when the business is an S corporation or C corporation.
The money does not have to come from the child's paycheck dollar for dollar. Parents can fund the contribution as a gift, as long as the total does not exceed what the child earned.
Contributions can come back out at any time without tax or penalty. Earnings are tax-free once the account has been open five years and the owner is 59½, with limited exceptions such as a first-time home purchase.
Illustrative example
Illustrative: a parent with a sole proprietorship in the 32% bracket employs a 15-year-old for genuine office work and pays $7,500 a year, every year through age 22. Each year the full $7,500 goes into a Roth IRA. Assumes the limit stays at $7,500 and a 7% average annual return, and actual returns will vary.
- Parent's business deduction each year: $7,500 x 32% = $2,400 of federal income tax saved (self-employment tax savings are additional)
- Child's federal income tax on $7,500 of wages: $0, covered by the standard deduction
- Social Security and Medicare tax on the child's wages: $0 (child under 18, parent-owned sole proprietorship); applies again from age 18 unless otherwise exempt
- Total contributed, ages 15 through 22: 8 x $7,500 = $60,000
- First $7,500 grows for 50 years: $7,500 x 1.07^50 = about $220,900
- All eight contributions grown to age 65: about $1,411,600, tax-free on qualified withdrawal
Illustratively, $60,000 of contributions becomes about $1.41 million of tax-free retirement money, while the parent saves about $2,400 a year of income tax on the wages.
The rules
| Rule | Citation |
|---|---|
| Roth IRA contributions are limited to the lesser of the annual limit or the individual's compensation for the year. | IRC §408A(c)(2); IRC §219(b)(1) |
| Wages a parent pays a child under 18 from a sole proprietorship or parent-only partnership are not subject to Social Security and Medicare tax. | IRC §3121(b)(3)(A) |
| Those wages are exempt from federal unemployment tax until the child turns 21. | IRC §3306(c)(5) |
| Qualified Roth distributions, after five years and age 59½, are tax-free. | IRC §408A(d) |
Watch-outs
- The work must be real, age-appropriate and paid at a market rate. Keep timesheets, job descriptions and pay records.
- Pay the child by check or direct deposit into the child's own account, and issue a W-2. Cash with no records is hard to defend.
- Investment income in the child's name can trigger the kiddie tax. Earned income is not subject to it.
- A Roth IRA counts as the child's asset on some financial aid formulas differently from parent assets. Check before large balances build.
What we do
We confirm the business structure supports the payroll tax exemption, set up compliant payroll and W-2s for your child, and document the work. We also coordinate the contribution amount with the child's earned income each year so the account never takes an excess contribution.
Questions
Is there a minimum age?
No. The test is earned income from real work. Very young children rarely have defensible wages, which is why most families start in the early teens.
Does my child have to contribute their own paycheck?
No. You can give the child the contribution money. The cap is the child's earned income for the year, not the dollars that came from the paycheck.
What if my business is an S corporation?
The child can still be paid and fund a Roth IRA, but Social Security and Medicare tax apply to the wages. The math usually still works; we run it before you start.