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Child IRA

Set your child up for future success by funding an IRA for them for now.

Commonly referred to as Child IRA’s or Individual Retirement Accounts or Custodial IRA's.

Do I Qualify for the Child IRA?

Taxpayers who have minor children who have earned income can take advantage of IRA contributions for their children. The child or the child’s parent can make contributions to the IRA up to the child’s earned income or the individual IRA limitations.

2022 Child IRA Details

Anyone with earned income is able to make contributions to an Individual Retirement Account (IRA), up to the lesser of their earned income or the current IRA contribution limits. Taxpayers who have minor children with earned income can either contribute directly to the IRA on their child’s behalf, or can have their child contribute their earned income to the account.

If you have hired your own child to work in your business, you can potentially increase the amount you pay your child to meet the IRA contribution maximum. By doing so, you are maximizing the amount your child is saving for retirement. If your child is already being paid the standard deduction amount, you can still increase their wages by the IRA contribution maximum and keep them below the threshold for filing, so long as the child themself is the individual contributing their income to the account.

By increasing the amount of wages paid to your child-employee, you increase the business’s wage expenses and ultimately reduce you and your business’s income. This strategy should be used in conjunction with the Hiring Children strategy to maximize the benefits.

Child IRA

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• Contributions reduce child’s taxable income.
• Contributions may reduce payroll taxes, depending on the age.
• The amounts in the account will have significantly longer to grow than the average individual.
• Amounts contributed by the child may be after-tax and not subject to taxes on distributions.


• Can only contribute up to the amount of income earned by the child.
• Contributions cannot exceed comparatively low IRS limits.

Assumptions When Taking the Child IRA

• Taxpayer has annual exclusion available if gifting directly.
• The child will not have investment income over $1,100.
• The child is unmarried/cannot be claimed as a dependent by someone else.
• The IRA contributions will be pre-tax.

Conflicting Strategies

• None noted.

Requirements to Claim the Child IRA

• The child must have earned income.
• The child must be employed directly by their parents for full benefits.

Business Entities That Can Claim the Child IRA

• Schedule C
• S Corporation
• C Corporation
• Schedule E
• Schedule F
• Farm Rental

The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.

Prosperity Tax Advisors
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