Hiring Your Child and Contributing to their Roth IRA

As a parent and business owner you might be thinking about the possibility of hiring your child to work in your business. This arrangement can bring advantages for both you and your child. It offers them work experience and a sense of responsibility while allowing you to support their future in a meaningful manner.

One approach is to establish a Roth IRA (Minor Roth IRA for under 18) for your child and make contributions, on their behalf. A Roth IRA is a retirement savings account that enables individuals to save and invest income after taxes with the potential for tax growth and withdrawals during retirement. By initiating this account for your child you can assist them in laying a financial groundwork for the future.

When you employ your child within your business you can provide them with a salary for their efforts. These earnings can then be utilized to contribute to their Roth IRA up, to the limit set by the IRS. Through these contributions you are instilling in your child the value of saving for the future. You are also giving them an early advantage in building their retirement savings.

There are advantages associated with contributing to a Roth IRA on behalf of your child.

Firstly, the money put into the account is, from your earnings after taxes allowing your child to potentially take out the funds without paying taxes at any time. Moreover, any profits earned on these contributions can increase without being taxed as certain criteria are met offering a beneficial opportunity for long term financial growth.

It's crucial to understand that there are regulations and guidelines to adhere to when employing your child in your business and contributing to a Roth IRA for them. Seeking advice from an advisor or tax expert is recommended to ensure compliance with all rules and maximize the advantages for both you and your child.

In summary hiring your child in your business and contributing to their Roth IRA can be a way to secure their future and impart important money management skills. By initiating this process and consistently making contributions you can assist your child in establishing a solid base for their retirement savings paving the way for financial prosperity, in the future.

Learn about other business owner tax considerations here

About the author:

Paul Carriere CFP® provides fee-only financial planning and investment management services in Colorado Springs, Co. Carriere Financial Planning serves clients as a fiduciary and never earns a commission of any kind. Paul has over 10 years of experience as a financial advisor in Colorado Springs. 

* This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities.