In our previous post, we discussed why we chose to homeschool our kids and how it has allowed us to give them an early head start in life. By putting them on track to graduate with both their bachelor's and possibly their master's by 18, they'll start earning earlier than their peers, and this is important because of one magical concept: compounding.
We're able to do this for our kids without compromising their ability to grow up as kids or have a social life. If you're interested in learning more, I would recommend reading that post. Now, standard disclaimer before we begin. It is important to note that everything I'm sharing in this post is what my wife and I are doing for our family, and we're simply sharing that. This is not advice or recommendations for anyone else. Please do your own due diligence.
Early Head Start
In the US, with the exception of certain jobs, such as child actors or children working on their family's farm, it's not typical to officially hire your own kids and put them on payroll at a young age. There are probably exceptions where this might apply, but generally speaking, most kids become eligible for actual work (through seasonal jobs and whatnot) around the age of 14. Some might earn some money doing part-time work such as babysitting, but realistically 14 is good rule of thumb for when kids can start work.
Now it's important to note that both my wife and I work in tech; we both have coding backgrounds, where she is a UIX Engineer with a product, design, and marketing background, and I have a more self-taught software development background, though I went on to complete both my undergraduate and graduate degrees in computer science. As a result, we run tech businesses and side hustles, and I try to teach my kids how to code early on.
Couple this with the fact that my kids begin taking college-level courses by the time they're 14, and it makes it easier to justify paying them a decent salary and putting them on payroll legally, without trying to find loopholes in the system, or making them go out and get a minimum wage job. Since they are taking college-level courses and they know how to code, I hire them as junior developers and pay them a fair salary.
Earned Income to Fund Roth IRA
This works as a write-off for me, and everything they earn up to the standard deduction is a pure write-off for them. More importantly, this gives them earned income, allowing them to contribute to their Roth IRA starting at age 14. If you're not familiar with what a Roth IRA account is, I'd highly recommend looking it up.
In short, it's a type of tax-advantaged retirement account you can invest in, but only if you have earned income. Parents simply cannot fund these accounts on behalf of their kids. The child must have earned actual income in order to fund their Roth. There's an annual limit of how much you can contribute, and you must invest the funds, but any growth in the account grows tax-free, such that by the time you're 59.5 years old, they can withdraw all the funds and gains without paying any additional taxes. It's important to note that we hire our kids to do real work, add them to actual payroll, which, given their aptitude and skill level, should be no issue.
At the time of this writing, the only one old enough who's currently working for me is my oldest. Thankfully, he really enjoys coding and also studies computer science. This has the added benefit of giving him real-world experience building actual products in production and gaining real skills. We plan to follow this same blueprint for all other kids.
Other Tax-Advantaged Accounts
Due to changes introduced last year with the Big Beautiful Bill, we will also be able to fund $5,000 per year per child towards a new tax-advantaged IRA-style account called Trump Accounts, coming later this year. Putting aside how you may feel politically (as I've seen this become a charged debate online), these accounts are an amazing thing for kids to have. Our kids don't qualify for the free gift amounts that children born between 2025 and 2028 get, which if your kids are, that's a free $1,000 contribution you can get per child, but you can still contribute to these accounts and grow the investments in them. You will also be able to retroactively fund the account for 2025.
For kids under 10 years old that don't qualify for the $1,000 gift contribution, the Dell Foundation is offering $250 per child on a first come first serve basis until the funds are gone. Regardless of the either gift contributions, this is still an account worth having if you're able to contribute on behalf of your kids.
At 18, the child can then do a Roth conversion and add this to their Roth IRA. By then, they'll have quite a bit compounded towards their retirement as a solid starting point. Then, with our kids graduating from college at 18 and getting a head start on their career, they can continue to fund their Roth and contribute to their 401(k). Compounded over their lifetime until retirement age, they should be quite set. If their income exceeds the limit, there are also options for backdoor Roth and mega backdoor Roth (if you're unfamiliar, you can look those up as well).
Other Accounts
In addition to the above, we also have it set so that any amount they earn from working for us above the Roth annual contribution limit goes into a custodial Uniform Transfer to Minors Act (UTMA) account, which is essentially a brokerage account they will take over once they turn 18 as well.
This ensures we can invest the remaining earnings in high-growth ETFs, index funds, or other stocks on their behalf, allowing them to start building their investment accounts early as well.
There are other potential considerations, such as a traditional 529 account for education, which can grow tax-free up to a certain limit. For any unused amounts, you have the option to roll over up to $35,000 per beneficiary over to their Roth as well. However, one drawback with this is the rollover here, as I understand it, does count against your annual contribution limit, unlike other rollovers, and due to the limitation of only being able to use these funds strictly for education and only being able to assign a new beneficiary if you don't use all the funds, it really isn't worth it for us to fund this. This doesn't mean it couldn't be a great choice for others.
We've essentially set up a simple system so that we know our kids will be set if they simply follow some basic investment rules as they enter adulthood, ensuring their retirement is covered.
