Legally reduce taxes by hiring your child and build long-term wealth with a Roth IRA. Here’s your 2025 strategy. Check your tax-saving strategy below!
Hire Your Child & Contribute to a Roth IRA: The Ultimate 2025 Family Tax Strategy
In 2025, hiring your child and contributing to a Roth IRA remains one of the best tax-saving and wealth-building strategies available to families. Here’s how to do it legally and effectively.
1. 2025 Tax Benefits of Hiring Your Child
Children can earn up to $14,600 tax-free in 2025. Meanwhile, your business deducts that salary, reducing your taxable income.
2. No Payroll Taxes — But Only for Certain Businesses
Sole Proprietorships and Partnerships (spouse-owned) qualify for payroll tax exemption if the child is under 18. S and C Corporations do not qualify.
3. Employment Requirements
- Assign real tasks
- Pay a reasonable wage
- Issue W-2 forms
- Keep accurate records
4. How Can the Child Use Their Income?
Not for basic needs, but they can use it for activities, gifts, vacations, and Roth IRA contributions.
5. Roth IRA Eligibility in 2025
Any earned income qualifies, even from informal work. Keep documentation to verify income.
6. Opening a Custodial Roth IRA
Parents open the account and manage it until the child reaches adulthood. Recommended providers: Fidelity, Vanguard, Charles Schwab.
7. 2025 Roth IRA Contribution Limits
Up to $7,000 per year — but only up to the amount of the child’s earned income.
8. Gift Tax Rules
Parents can fund the account up to $18,000 per year per child without triggering gift tax, as long as it matches earned income.
9. Roth IRA Withdrawal Rules
Withdraw contributions anytime. Withdraw earnings tax-free after 5 years and age 59½, or for first home or education costs.
Conclusion
This 2025 strategy reduces your taxes and builds your child’s financial future. Start today for long-term family wealth success.
