Roth IRA

and the power of Compound Interest

How does a Roth IRA Work?

Contributions to a Roth IRA are made with after-tax dollars, which means that the money in the account can grow tax-free and be withdrawn tax-free in retirement.

For 2026 the Roth IRA Contribution limit is the lower of:

  • Total Earned Income or

  • $7,500



What Does this Mean for Employing your Kids?

  • If they earn $3,000 during the year, the max they can contribute to a Roth IRA is $3,000.

  • If they earn > $7,500 during the year, the max they can contribute to a Roth IRA is $7,500

Roth IRA Calculator

Roth IRA Calculator

Roth IRA Calculator

Compound Interest

Compound interest breaks down to understanding this:

You can earn interest today, on the interest you earned yesterday.

Investing at a younger age provides a HUGE advantage for retirement.

Estimate Roth Balance at age 18

Based on a $2,000 Annual Roth Contribution

Estimate Roth Balance at age 18

Based on a $7,500 Annual Roth Contribution

If your child contributes $7,500 a year beginning at age 8….

They’ll have over $80,000 more in their Roth IRA at age 18 then if they began at age 15.*

*Estimate based on 8% return


Estimated balance of your child’s Roth IRA if your child contributes $7,500 to a Roth IRA from age 10 to age 45.

*Based on 8% return. This is not to be considered investment advice.

$1,290,000+

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FAQs

  • No. Your child must be paid appropiately for the work they do based on their age.

  • Their Contribution is limited to their total earnings. If they only made $3,000 that is the maximum contribution they can make to a Roth IRA.

  • Yes, but it is still limited to the lower of their earnings, or $7,500.

    Additionally, if you are just personally gifting them funds into their Roth IRA there is no business write-off for this.

    Example: Your child earns $13,850 for 2023 - This is the maximum you can pay them before they are required to pay tax and file a personal tax return.

    You want them to keep all of the money because they are trying to buy their first car.

    That $13,850 is a write-off to your business because you paid them for the hours they worked in your business.

    However, you also want to help them get ahead for retirement. You as the parent can contribute the $6,500 to their Roth IRA as a gift. This will NOT be a write-off to your business.

  • -They can always withdraw contributions (not earnings)

    -They can withdraw up to $10,000 without the 10% early withdraw penalty once in their life for a first time home purchase.

    -They can withdraw for higher education costs without the 10% early withdraw penalty :

    Tuition

    Fees

    Books

    Supplies

    Required equipment

    Room and board (if you're at least a half-time student)