Frequently Asked Questions
Find answers to common questions about Roth Wizards, family employment, and Roth IRA contributions.
How do I get an Employer Identification Number (EIN)?
An EIN is required if you plan to pay your child for business work, operate as an LLC or corporation, or want to open a business bank account. You can apply directly through the IRS website, or use our done-for-you EIN filing service.
What’s the difference between chores and payable household jobs?
Chores are routine family responsibilities (like making beds or clearing dishes) that should not be paid. Payable jobs are real work tasks you could hire someone else to do—like deep-cleaning, organizing, or business-related tasks. Understanding this distinction is crucial for properly documenting your child’s earnings for tax and Roth IRA purposes.
Which custodial Roth IRA provider should I choose for my child?
The best custodial Roth IRA provider depends on your priorities. Fidelity and Schwab offer excellent overall experiences with strong educational resources. Vanguard is ideal for index-fund focused investors, while E*TRADE provides robust tools. Key factors to consider include account minimums, fees, investment options, platform usability, and educational resources.
Read our complete comparison of custodial Roth IRA providers →
How and why should I pay my kids?
Paying your children teaches financial literacy, budgeting, and delayed gratification. There are several approaches: casual chore payments, weekly allowances, household employee arrangements (for non-business owners), or family business employment (for business owners). The household employee strategy allows you to pay kids for domestic work without Social Security/Medicare taxes, and the earned income qualifies them for a custodial Roth IRA.
What is a custodial Roth IRA and how does it work?
A custodial Roth IRA is a tax-advantaged retirement account that parents can open and manage for their minor children. It allows kids to save for retirement using earned income, with tax-free growth and tax-free qualified withdrawals. Children can contribute up to $7,000 per year (2025) or their total earned income, whichever is less. The account grows tax-free, and parents control it until the child reaches adulthood.
How do I set up an IRA for my child in 5 easy steps?
Setting up an IRA for your child involves: (1) Opening a custodial IRA for any child with earned income, (2) Gifting money to fund contributions if needed, (3) Choosing a Roth IRA for tax-free growth, (4) Investing for the long term with appropriate risk, and (5) Keeping good records of earned income and contributions. Starting early can result in over $1 million by retirement age with consistent contributions.
What are the benefits of opening a Roth IRA for my child?
Roth IRAs for kids offer tax-free growth, no minimum age requirement (only earned income is needed), and flexibility for educational expenses, first home purchases, and emergencies. Since children are typically in the lowest tax bracket, paying taxes now and withdrawing tax-free later makes Roth IRAs ideal. Parents and grandparents can contribute, and the account can be used for more than just retirement.
How can I set my kids up for financial success?
There are several strategies to set your kids up for financial success: UTMA custodian accounts for investment experience, 529 savings plans for college expenses, irrevocable life insurance trusts for estate planning, matching contribution funds to incentivize saving, and custodial Roth IRAs for long-term retirement savings. The key is to start early, involve your child in the process, and use the right tools to track and document their earnings.
Read our complete guide on setting kids up for financial success →