Can I gift money to my kids to fund their custodial Roth IRAs? Need tax advice

Your intentions are great, but there's an important rule with Roth IRAs that you need to know. Kids (or anyone) can only contribute to a Roth IRA if they have earned income - meaning money they've actually worked for and earned themselves. The contribution limit is either the IRS maximum ($7,000 for 2025) OR their total earned income for the year, whichever is lower. You can absolutely gift them money, but they need to have their own earned income to make the Roth IRA contributions. The good news is that kids can earn money in lots of ways! Babysitting, lawn mowing, helping with a family business (with legitimate work and reasonable pay), modeling, acting, etc. Just make sure to document their earnings properly.

I discovered this same problem last year! I wanted to start Roth IRAs for my nieces but ran into the earned income requirement. I was super frustrated until I found this amazing tool called taxr.ai (https://taxr.ai) that helped me understand all the rules around kids and taxes. It analyzed my situation and showed me legit ways my nieces could earn income that would qualify for Roth contributions. The site explained that while I couldn't just gift money for Roth contributions, I could pay them for actual work like modeling for my small business's website and social media. I documented everything properly with contracts and reasonable compensation based on what professionals would charge. Taxr.ai even had templates for tracking their earnings properly so it would all be legitimate!

I was skeptical about hiring my kids and setting up Roth IRAs, but I decided to check out taxr.ai after seeing it mentioned here. Honestly it was super helpful! I uploaded my tax situation and it suggested my 13yo daughter could legitimately work as a product tester/reviewer for my e-commerce business. They provided templates for tracking her hours and determining fair compensation. She's been doing real work for 6 months now, earning about $2,400 annually which we've documented properly. We opened her custodial Roth IRA last month and contributed her earnings (well, technically I gifted her the equivalent money since she spent her actual earnings). The compound interest calculator on there showed that her $2,400 annual contribution could potentially grow to over $1 million by retirement age! Definitely glad I found this resource.

I had the exact same situation with my kids and I almost gave up on the Roth IRA idea because I could NEVER get through to the IRS to confirm the rules. After being on hold for literally 3+ hours multiple times, I found this service called Claimyr (https://claimyr.com) that got me connected to an IRS agent in under 20 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed everything: 1) Kids must have earned income to contribute to a Roth IRA, 2) The contribution can't exceed their earned income, 3) You CAN gift them money to make the actual contribution, but they need legitimate earnings to qualify. Getting official confirmation directly from the IRS gave me total confidence to move forward with my kids' Roth IRAs. So worth it after all my frustration!

Ok I have to admit I was completely wrong about Claimyr. After dismissing it as a probable scam, I decided to try it because I had some complicated questions about my kids' income from appearing in my YouTube videos. I was connected to an IRS agent in about 15 minutes (after previously wasting HOURS on hold). The agent was super helpful and explained exactly what documentation I need for my kids' modeling/acting work to qualify as earned income for Roth IRA contributions. She confirmed that paying my kids to appear in my business-related social media and videos counts as legitimate earned income if I pay reasonable rates and keep proper records. I've already set up custodial Roth IRAs for both my kids and feel 100% confident everything is properly documented. Sometimes it's worth admitting when you're wrong!

You could also consider setting up a 529 college savings plan instead. Those can be funded with gifted money without any earned income requirements. I've done this for my grandkids and it's working great - the money grows tax-free and stays tax-free if used for qualified education expenses.

My kids earn money by being models for my wife's children's clothing business. We pay them the going rate for child models in our area (around $25-30 per hour) and they work about 3-4 hours per month. This gives them each around $1000-1200 in earned income per year which we document carefully. The money goes into their custodial Roth IRAs and we've been doing this for 3 years now.

You can also consider a family business where your kids actually do legit work. My friend has her kids help with her Etsy business - packing orders, taking inventory, simple stuff appropriate for their ages. She pays them reasonable wages (documented with timesheets) and they can use that earned income to contribute to Roth IRAs. The key is that it has to be REAL work with reasonable compensation.

This thread has been incredibly helpful! I've been wrestling with the same question for months. Based on everyone's input, it sounds like the key is finding legitimate ways for kids to earn income first, then you can gift them money to make the actual Roth IRA contributions. I'm thinking of having my kids help with my freelance graphic design business - they could do simple tasks like organizing files, basic data entry, or even be "kid consultants" for projects targeting families. The important thing seems to be documenting everything properly and paying fair wages for actual work performed. One question though - do you need to worry about payroll taxes when paying your own children? And at what income level do they need to start filing their own tax returns? I want to make sure I'm not creating a tax nightmare while trying to help their retirement savings!

This is such a common question among parents wanting to jumpstart their kids' retirement savings! I went through the same research process last year. The earned income requirement is definitely the key hurdle, but there are more opportunities than you might think. Beyond the family business ideas already mentioned, consider that kids can also earn money from: - Pet sitting for neighbors - Yard work/snow shoveling - Selling crafts or baked goods (with proper permits if required) - Acting/modeling (even small local gigs) - Tutoring younger kids in subjects they excel at - Tech help for elderly neighbors The important thing is that whatever they do needs to be legitimate work with reasonable compensation. I started small with my 8-year-old helping me organize my home office and doing simple data entry tasks. We documented everything with a basic timesheet and pay her $15/hour (which is reasonable for administrative work in our area). One tip: start the earned income activities early in the year so you have time to build up enough earnings to make a meaningful Roth IRA contribution. Even $500-1000 per year starting at their age will compound to incredible amounts over 50+ years. The math is truly amazing when you run the numbers!

This has been such an educational thread! I'm in a similar situation with my 7-year-old, and I'm now convinced that finding legitimate earned income opportunities is the way to go rather than just trying to gift money directly. One thing I haven't seen mentioned yet is keeping detailed photo/video documentation of the work being performed. My accountant suggested this when I asked about hiring my daughter to help with my small business. She said having timestamped photos of kids actually doing the work (organizing inventory, stuffing envelopes, etc.) creates a strong paper trail that shows the employment is genuine. I'm planning to start with simple tasks like having my daughter help sort and organize products for my online store. At $12/hour for 3-4 hours per month, she could earn around $400-500 annually - not huge, but it's a start and would support a small Roth IRA contribution. The compound growth over 50+ years will make even those small early contributions incredibly valuable. Has anyone found good resources for creating simple employment agreements for family members? I want to make sure I cover all the legal bases while keeping things appropriate for a young child.

This is such valuable information, everyone! I've been struggling with the same question for my 11 and 13-year-olds. Reading through all these responses has really clarified the path forward - legitimate earned income first, then gifted money for contributions. I'm particularly intrigued by the modeling/content creation ideas since I run a small YouTube channel about family activities. It never occurred to me that paying my kids to appear in videos could count as earned income if properly documented. That seems like a natural fit since they're already helping me create content anyway. My main concern is making sure I get the documentation right from the beginning. It sounds like the key elements are: reasonable hourly rates based on local standards, detailed timesheets, clear job descriptions, and maybe even photos showing the actual work being performed. I definitely don't want to create problems down the road by cutting corners on the paperwork. One question - for those who've been doing this successfully, how do you handle the actual payroll process? Do you cut physical checks to your kids, set up direct deposit, or just track it all on paper? I want to make sure there's a clear money trail that shows legitimate employment payments separate from regular allowance or gifts. The long-term potential really is incredible when you run the compound interest calculations. Even getting $500-1000 per year into Roth IRAs starting at their ages could potentially grow to well over a million dollars by retirement. That's life-changing money that could give them so much more financial freedom as adults.

This thread has been incredibly helpful! I've been wondering about this exact same situation with my 9-year-old daughter. After reading everyone's experiences, I'm now convinced that finding legitimate work opportunities for her is the right approach. I run a small photography business, and it just occurred to me that my daughter could earn income by being a child model for some of my family portrait sessions - helping demonstrate poses or serving as a "practice subject" when I'm testing new lighting setups. I'd need to pay her competitive rates for child modeling work and document everything properly. The compound interest potential really is amazing when you think about starting this early. Even if she only earns $600-800 per year from legitimate modeling work, that could grow to substantial amounts over 50+ years in a Roth IRA. One thing I'm still unclear on - do I need to get any special permits or child work authorization since she'd technically be employed? I know there are child labor laws, but I'm not sure how they apply to very part-time work for a parent's business. Has anyone dealt with this aspect of hiring their own children? Also, I love the idea someone mentioned about taking photos during the work to document that it's legitimate. That seems like a smart way to create a paper trail showing she's actually performing real work, not just getting paid for nothing.

I'm in exactly the same boat with my two kids (ages 7 and 11)! After reading through all these responses, I'm convinced that creating legitimate earned income opportunities is definitely the way to go. The compound interest potential over 50+ years is just too good to pass up. I've been thinking about how my kids could help with my freelance consulting business. Simple tasks like organizing client files, data entry, or even helping me prepare presentation materials could work well for their ages. The key seems to be documenting everything properly - timesheets, reasonable hourly wages, and maybe even photos showing them actually doing the work. One thing I'm curious about - for those who've successfully set this up, how do you handle the transition from earned income to the actual Roth IRA contribution? Do you have your kids physically make the contribution themselves, or do you gift them equivalent money and handle the account management? I want to make sure I'm structuring this correctly from both a legal and practical standpoint. Also, has anyone found good resources for determining "reasonable" hourly rates for kids doing simple administrative work? I want to pay them fairly but not so much that it raises red flags. Thanks everyone for sharing your experiences - this thread has been incredibly valuable!