I made a huge income jump from a career move right after having a baby. I do not want to do any lifestyle creeping and would rather put this money to work with compound interest. I'll already be maxing out my and my wife's Roth IRA and Roth 401k, and I already contribute to a 529. I have more excess money that I want to save on behalf of my children. I'm trying to figure out the best method of doing so.

I know the following:

  1. You can open a Roth IRA for a minor, a "custodial" account.
  2. If you make less than the standard, you do not have to pay taxes

This leads me to assume that I would be able to pay my baby a salary of 6,000 a year to, for example, visit his grandparents, which will be enough to fill up his Custodial Roth IRA, and the money will not have to be taxed because it's below the standard deduction. Is this the case? If so, what would I need to do exactly? Would I even need to file a W2?

  • 4
    What work will your baby be doing in order to earn this $6,000 a year?
    – Nosjack
    Aug 9, 2021 at 18:15
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    #1 Child labor laws preclude them working. #2 You're not the first to think of this. How do I know? Because if it was legal all the other rich people would be doing it.
    – RonJohn
    Aug 9, 2021 at 18:23
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    @JTP-ApologisetoMonica their work is strictly regulated and a PITA for studios and modeling agencies (which is why Dawson Casting exists).
    – RonJohn
    Aug 9, 2021 at 18:39
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    Understood. I was just making a point. But ultimately, I agree with you and reflected that in my answer. Aug 9, 2021 at 18:47
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    @RonJohn: Err... Do we know that all the other rich people don't do it? Of course $6K/year might not be worth bothering with if you're really rich :-)
    – jamesqf
    Aug 10, 2021 at 16:56

2 Answers 2


Just gift them the money (maybe into a UGMA/UTMA account). It won't earn $12000 yearly dividends and cap gains for a long, long, long time.

EDIT: parents must pay taxes on their children's custodial accounts after $1100. 10% from $1101 to $2200 and the parents' rate after that.


I applaud you for thinking ahead. I'd consider RonJohn's answer, but keep in mind when children are of an age they can actually work, you can deposit 100% (up to the maximum Roth limit each year) into the Roth.

This was the process I used to fund my daughter's Roth starting at age 12 or so. Legit good income babysitting. Documented to be audit friendly, names, date/time, payement, etc. She graduated college this year with just north of $65,000 in the Roth. A great head start on her retirement savings.

  • 1
    So, your daughter actually made $5000 (or whatever the IRA contribution limit was when your daughter was 12 years old) each year? Properly documented as to names, dates and times of payment? Wow! Aug 9, 2021 at 20:43
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    The $65K includes return. I’ve invested it well. The first few years deposits started at about $2000. Even at 12, she was getting $10/hr. Aug 9, 2021 at 20:54

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