Hiring My Child: The Genius Move for Tax-Free Wealth
I hired Theo to work for me.
And no, I’m not some evil mother exploiting him for free labor. I’m actually paying him. Why am I doing this? When Theo was born, I debated whether or not I would post photos of him on Instagram. We all have that urge to share cute photos of our kids or pet, but I felt strongly about letting him make that decision for himself when he’s old enough. I thought about how kids these days don’t really have a choice when it comes to their representation and privacy online, and that still doesn’t feel right to me. However, when I learned about how I could set him up with tax free wealth through a custodial Roth IRA, I decided that this was actually in his best interest.
So, I hired him to create content with me. Every time I post a photo of him on instagram or we do a brand collaboration, I pay him for that!
Watch my video about this below, or keep scrolling to read more
Custodial Roth IRA: The Kid's Magic Piggy Bank!
Recall stashing away coins in a childhood piggy bank? Now envision one where every cent miraculously grows and is later available tax-free!
Understanding Roth IRA:
Envision a garden where money plants (investments) yield tax-free harvests (returns). Unlike its traditional counterpart, the Roth IRA, funded by post-tax money, blossoms tax-free gains over time – a boon for potential high earners, like kids!The Under-18 Magic – Custodial Roth IRA:
Designed for those under 18, the money they gather, whether via summer ventures or digital endeavors, flourishes here, thanks to compound interest. That $50 from Lucy’s lemonade stand? By retirement, it's a potential gold mine. And hiring your child? That's double the financial advantage: a business expense and a head start for their future!Key Rules to Note:
Yearly contributions are capped at the child's earnings or $6,000 (2021). Control shifts to them between ages 18-21, depending on your state. The cherry on top? Withdrawals for retirement or pivotal life events (like education or home purchase) are tax-free.
Why You Should Consider 'Employing' Your Child
Having been a child actor, I can vouch for the discipline and work values instilled early on. But this move isn't just about teaching work ethics; it's a holistic financial strategy benefiting the entire family. Introduce them to the marvel of compound interest and let them journey through financial literacy from a young age.
But, Remember: Keep It Legal!
This isn't a mere hand-shake deal with your toddler. The IRS keeps an eye out.
Documentation is Crucial:
Year-end requires issuing a W-2 form detailing their earnings. Maintaining a log of their hours, tasks, and pay is essential. And as they grow, involve them. It’s a real-world financial class!
Legitimate Tasks for Legitimate Pay:
The IRS might scrutinize, so ensure tasks align with their age. Maybe your child won’t manage accounts, but they can genuinely promote your brand.
In Reflection...
I see this choice as a ticket to Theo's prosperous future. As he matures, it’s more than just a financial strategy; it's our bonding tool. As he yearns for trendy toys or gadgets, I envision a future Theo, appreciating our collective foresight.