One of the most common questions I receive as a financial planner is some version of this: “My kid earns money doing things around the house — can I pay them for that and then contribute to a Roth IRA for them?”
It’s a genuinely important question, because the Roth IRA is an extraordinary wealth-building vehicle for young people, and parents naturally want to find ways to start funding one as early as possible. The short answer is: it depends on exactly how the arrangement is structured, and the IRS has specific rules that matter here.
Getting this wrong could mean contributing to a Roth IRA based on “income” the IRS doesn’t recognise — which creates an excess contribution, triggering penalties. Let me walk through exactly what counts and what doesn’t.
The Core Rule: Earned Income Is Required
A custodial Roth IRA requires that the contributor (the minor) has earned income equal to or greater than the contribution amount. The IRS defines earned income as income from work — wages, salaries, tips, and net self-employment income. Investment income (dividends, interest, capital gains) does not count.
This is the gate that all “can my child contribute to a Roth IRA?” questions pass through. The key is whether the income is genuinely “earned” in the IRS sense.
The Critical Distinction: Legitimate Work vs. Household Chores
Here is where families most often get into trouble:
What Does NOT Count as Earned Income for a Roth IRA
The IRS does not consider standard household chores paid by a parent to be “earned income” for purposes of IRA contributions. If you pay your child an allowance for tasks like:
- Taking out the trash
- Doing the dishes
- Vacuuming or cleaning their room
- Mowing the family lawn as part of household duties
- Doing laundry
…this generally does not constitute earned income for Roth IRA purposes. These are household maintenance tasks that a child is expected to contribute to as a member of the household. The IRS’s position — and the courts’ interpretation — is that payments for ordinary household chores are effectively an allowance, not compensation for services rendered.
Additionally, you do not need to pay your child employment taxes on household chore payments, which is actually the clearest signal that these payments are not treated as wages. Without employment taxes being paid and a W-2 being issued, the income will not appear on any tax filing as earned income — and the IRA cannot be funded based on it.
What DOES Count as Earned Income for a Roth IRA
The distinction is legitimate economic activity — work that produces something of real economic value, compensated at arm’s-length rates (what you’d pay anyone else to do it):
- A legitimate family business payroll — If your child works in a family business (your LLC, S-Corp, or sole proprietorship) doing genuinely useful work, you can put them on payroll. You must pay them reasonable compensation for their actual work, withhold taxes, issue a W-2, and treat the employment the same as you would any employee. This does create earned income for Roth IRA purposes.
- Self-employment income — If your child mows neighbours’ lawns, babysits, offers a tutoring service, creates and sells content, or performs other legitimate services for third-party customers and earns income, that is self-employment income. It is earned income for Roth IRA purposes, even without a W-2. Net self-employment income (after the self-employment tax deduction) is the relevant figure.
- Traditional employment — Any W-2 job, including part-time work, seasonal work, food service, retail, acting, modelling, or sports. If the employer issues a W-2, the income shown is earned income for Roth IRA purposes.
The Family Business Payroll Strategy: What Works
The most common legitimate strategy for younger children is putting them on the payroll of a parent-owned business. This works — but only if you follow the rules correctly:
- The work must be real and documentable — your child must actually perform services that your business needs. Examples: helping with social media content, answering emails (for older children), stuffing envelopes, data entry, helping at events, cleaning the office.
- The pay must be reasonable — pay at the rate you’d pay a third party for the same work. Paying a 10-year-old $50,000 to “be the face of the brand” will not survive IRS scrutiny.
- Proper payroll must be run — issue paychecks, withhold FICA taxes (for incorporated businesses) or use the parent/child exemption (for sole proprietors — more on this below), and issue a W-2 at year end.
- Document everything — keep a simple timesheet or log of what the child did, when, and for how long.
Important tax advantage for sole proprietors: If you operate as a sole proprietor (Schedule C) or a single-member LLC taxed as a sole proprietor, wages paid to your child under 18 are exempt from Social Security and Medicare taxes. This is a meaningful tax benefit: your child earns income, you deduct it as a business expense, and no payroll taxes are due. The child will owe income tax only if their total income exceeds their standard deduction ($14,600 for 2025 for single filers) — which it won’t for most part-time arrangements.
Tax Implications of Paying Your Child
Once your child has genuine earned income, the tax picture is straightforward and favourable:
- Income tax on the child’s earnings: Children are taxed at their own rate, not the parents’. For 2025, the standard deduction for a dependent is $14,600. If your child earns $7,000 from legitimate work, they owe zero federal income tax. You should still file a return to document the income.
- The “Kiddie Tax” doesn’t apply to earned income: The kiddie tax (which taxes a child’s unearned income at the parent’s rate) applies only to investment income, not wages or self-employment income. Earned income is always taxed at the child’s own rate.
- Do you pay taxes on chore money you pay your children? If the payments are genuine allowances for household chores (not wages for business services), no employment taxes apply. But then you also cannot use the payments as the basis for a Roth IRA contribution.
Setting Up the Roth IRA Once Your Child Has Legitimate Earned Income
Once your child has documented earned income from a legitimate source:
- Open a custodial Roth IRA at Fidelity, Schwab, or Vanguard (all charge $0 to open and maintain)
- Contribute up to the lesser of: the child’s earned income for the year, or the annual contribution limit ($7,000 for 2025)
- The parent can make the contribution — the child doesn’t need to contribute their own money. The rule is that the child earned the income, not that they personally deposited it.
- Keep documentation of the child’s earned income (W-2, 1099, or a simple self-employment income log for informal self-employment)
Frequently Asked Questions
Can I pay my child to clean our house and contribute to a Roth IRA?
Standard household cleaning duties (dishes, vacuuming, their own room) generally don’t qualify as earned income for Roth IRA purposes. However, if your child regularly cleans your home-based business office or commercial space as part of your business operations, and you compensate them at a reasonable market rate, that arrangement could qualify — with proper documentation and payroll.
What age can a child start a Roth IRA?
There is no minimum age. Any child with earned income can have a custodial Roth IRA. Child actors, musicians, athletes, models, or children who do legitimate work for a parent’s business can start contributing from any age.
How much can a child contribute to a Roth IRA?
The contribution is limited to the lesser of the child’s earned income for the year or the annual Roth IRA contribution limit ($7,000 for 2025). If a child earns $2,500, the maximum contribution is $2,500.
Do I need a W-2 for my child to have a Roth IRA?
Not necessarily — self-employment income also qualifies. But you should be prepared to document the income with something: a W-2, 1099-NEC for freelance work over $600, or a simple record of earnings if the self-employment income is informal (like neighbourhood lawn mowing). The burden of proof that earned income existed is on the taxpayer.
