A child must have taxable compensation to contribute to a custodial Roth IRA. Can compensation from household tasks meet that requirement?

Yes - when the child performs actual household work as an employee and receives compensation for those services.

IRS Publication 926 defines household work as work performed in or around a private home. It lists yard workers, housecleaning workers, babysitters, cooks, and caretakers as examples of household workers.

An ordinary allowance does not become compensation simply because it is called wages. The child must perform real work, and the payment must reflect the services performed.

How much can a child contribute to a Roth IRA?

IRA eligibility depends on compensation, not age.

For 2026, a child’s total IRA contributions cannot exceed the lesser of:

• $7,500, or
• The child’s taxable compensation for the year

A child with $1,000 of taxable compensation can contribute no more than $1,000.

A parent or grandparent may provide the cash deposited into the Roth IRA, but the child must still have sufficient taxable compensation to support the contribution.

Allowance vs. compensation for household work

Calling a payment “payroll” does not make it compensation. The underlying work must be genuine.

An example: Seasonal yard work

Jordan, age 13, performs seasonal yard work around the family home.

His assigned services include:

• Raking leaves
• Pulling weeds
• Gathering fallen branches
• Bagging yard debris
• Sweeping the patio

Before the work begins, Jordan’s parents define the tasks and establish how compensation will be calculated. They record the dates worked, services completed, time spent, and payments made.

Jordan earns $600 in taxable compensation during the year. His maximum IRA contribution is therefore $600.

Publication 926 specifically lists yard workers as household workers. The appropriate rate, however, depends on the work performed, time required, local market, and child’s ability. Families should consult a tax professional when compensation is difficult to benchmark.

What the arrangement requires

A household-employment arrangement requires substance, not labels.

Actual work

The child must perform identifiable services. Payments for work that was not performed are not compensation.

Responsibilities defined in advance

The family should identify the work and compensation method before the work begins.

Records created after a payment do not establish that the earlier payment was made for actual services.

Compensation tied to the work

Payment must reflect the services performed.

The family’s desired Roth IRA contribution is not a basis for setting compensation. The work and compensation come first. The Roth contribution follows from the income the child actually earns.

Contemporaneous records

Families should record:

• Date worked
• Services performed
• Time spent or agreed task rate
• Compensation earned
• Payment date and method

Documentation records a real arrangement. It does not create one retroactively.

What does not qualify?

The following do not establish compensation for Roth IRA purposes:

• Payments for work the child did not perform
• A recurring allowance relabeled as wages
• Birthday money or gifts relabeled after the fact
• Records created later to justify earlier transfers
• Compensation disconnected from the services performed
• A Roth IRA contribution greater than the child’s taxable compensation

Using payroll software does not turn a gift into wages.

Are wages paid to a child subject to payroll taxes?

Publication 926 states that wages paid by a parent to a child under age 21 are not counted as Social Security or Medicare wages under the federal household-employment rules.

That treatment does not remove the requirement to report compensation correctly.

State unemployment, workers’ compensation, income-tax, child-labor, and reporting requirements can differ. Families should review their state’s rules with a qualified professional before processing wages.

Does the child need a W-2?

The reporting requirement depends on the arrangement.

Publication 926 requires a Form W-2 in specified circumstances, including when wages are subject to Social Security or Medicare taxes or when federal income tax is withheld.

When a Form W-2 is not required, the IRS recommends providing the worker with a receipt showing the dates worked, wages paid, and a description of the work.

A tax professional should determine which federal and state forms apply to the family’s circumstances.

Where Halfmore fits

Halfmore provides infrastructure for families that establish household employment.

Halfmore:

• Records assigned household tasks
• Captures completed work
• Calculates and processes payments
• Maintains task and payment records
• Generates applicable payroll and tax documentation
• Coordinates contributions with the family’s selected custodial Roth IRA provider

Halfmore documents the arrangement and processes its mechanics. Whether particular work, compensation, and reporting treatment meet applicable requirements depends on the underlying facts and law.

The bottom line

Household tasks can generate the compensation required to fund a child’s Roth IRA.

The arrangement must involve:

• Actual work
• Compensation tied to the services
• Responsibilities established in advance
• Records created when the work and payment occur
• Compliance with applicable federal and state requirements

The employment arrangement comes first. The Roth IRA contribution follows from the compensation the child actually earns.

See how Halfmore helps families record household work, process compensation, and coordinate custodial Roth IRA contributions.

Sources

• Internal Revenue Service: Publication 926, Household Employer’s Tax Guide
• Internal Revenue Service: Publication 590-A, Contributions to Individual Retirement Arrangements
• Internal Revenue Service: IRA Contribution Limits
• Internal Revenue Service: Topic No. 756, Employment Taxes for Household Employees