The Benefits of Paying Your Kids from Your Practice: ROTH IRA
There are significant benefits to employing your children in your practice. The most powerful benefit is the ability to fund a ROTH IRA.
There are significant benefits to employing your children in your practice. The most powerful benefit is the ability to fund a ROTH IRA. Contributions to ROTH IRAs are non-deductible, but the growth is tax-free. There is no minimum age to fund a ROTH IRA, but it can only be funded if the child has earned income. This requirement can be met by employing the child in your practice.
When hiring kiddos, they do not have to file a tax return if you pay them less than the standard deduction ($13,850 for 2023). This is a great way to get them the max $6,500 (2023 limit) to fund a ROTH IRA. Starting a ROTH IRA at a young age could change your child’s life in the future. For example, if you started an IRA for a child at ten years old, and they contributed the 2023 limit of $6,500 for the next 55 years, by the time they are 65 years old, the IRA would have grown to over $5.5Mil (assuming an 8% return). Remember, the growth is tax-free! This is powerful because of the time component involved. Don’t we all wish we started saving for retirement sooner? Well, you can help your kids with that now.
Even a very young child can be a model for a website, especially if you’re a pediatric dentist! Older kiddos can help sterilize instruments, take out the trash, & work on landscaping. High-school & college-aged kids are great social media wizards & brand ambassadors!
As with all things tax-related, the key is to document & retain reasonable job descriptions for the kids. The pay should be proportional to the child’s age & job description. If you are not paying your kids through the practice, talk to us today to see how you can help set them up for future success!