If your parent helps you in your small business, you can pay them whatever their labor is worth. This gives them earned income which allows them to contribute funds to their Roth IRA. You then have them list you as the beneficiary on their Roth IRA. Thus, you have a mechanism to put more funds in a Roth IRA for your benefit. The maximum Roth IRA contribution is $8,000 – so if you paid them $8,000, you could have $8,000 more funds in a Roth IRA for your benefit. If your parents are both alive and both work for you, then double this amount. Caution: You can’t pay your parents more than you would pay anyone else for the same work…so if they don’t work for you, then ignore this idea.
The Power of Employing your Child Illustrated
If you meet these requirements:
- You are self-employed
- Your family has health insurance through the Federal Marketplace (healthcare.gov)
- You hire your college-age child in your self-employed business and pay him or her at least $14,580 during 2024 (or else your child’s total income between all jobs is that amount in 2024)
Then your child can “claim themselves” (i.e. not be your dependent), which allows:
- The child to get a refundable health insurance “subsidy” equal to the cost of their share of the family’s health insurance (around a $3,300 refund)
- The child gets a refundable American Opportunity credit (a $1,000 refund)
- The child can contribute money to their own Indiana 529 fund and get $400 of Indiana tax savings
- The child can contribute $8,300 to their own Health Savings Account (minor tax savings, but the child will have tax-free growth of those funds for life)
- The child can contribute $6,500 to their Roth IRA (there are no tax savings, but the child will have tax-free growth of those funds for life)
Caution: You can’t pay your child more than you would pay anyone else for the same work…so if they don’t work for you, then ignore this idea.