By this point in summer, the grill has seen too much corn, the kids have invented six fresh ways to leave paint across the table, and Etsy starts to feel like a family CFO project. That is where this week’s Ask Tim lands: tiny artists, a real shop, wages, Roth IRA eligibility, and the fresh Trump Account wrinkle.
Is this clever planning, tax origami, or a glitter-covered audit trap? The answer lives in the boring place where many good ideas either grow up or get grounded: facts, paperwork, and fair pay. If the business is real, the work is real, and the pay fits the work, this can be a useful setup. If it is just “Dad had a tax idea while staring at finger paint,” slow the cart before clicking publish.
Over summer break, my kids have filled the kitchen with little canvas creatures, sunsets, and a few pieces I can only describe as abstract rage after bath time. Friends keep saying the art could sell, and that sent me straight to Etsy with a calculator in hand.
I am tempted to start an LLC, list the pieces, track sales, pay the kids wages, and use those wages to fund custodial Roth IRAs. It feels like a clever family finance move, but I also feel like one bad checkbox turns proud dad into a man explaining glitter receipts to the IRS.
- Etsy Dad With a Paint Problem
Your idea sits in the category I call “likely viable, easy to mess up.”
I wear a financial-planning hat here rather than a legal or tax hat, but planning is cross-disciplinary in the way that we collaborate with professionals across areas of expertise to serve our clients. This inquiry and approach are more common than some may think, and there are trends and considerations to draw from when considering a venture like this.
Federal labor rules generally allow kids of any age to work in a business fully held by their parents, with carveouts for mining, manufacturing, and hazardous work; state labor rules can add permits, hour limits, or school-year rules.
The key driver is earned pay. A custodial Roth IRA requires the child to have taxable compensation, and the contribution is capped at the lesser of the IRA annual limit or that child’s taxable compensation; for 2026, the IRA limit is $7,500.
When considering employing a child, it’s crucial to be mindful of several variables that can impact this approach. What’s the scope of the kids’ responsibilities? How are they being paid?
How is your company structured? How is your company elected for tax treatment? What is the end goal here?
Although we typically have this conversation with an established business owner, you’re at the beginning of this journey if you decide to take the first step. That first step is to understand the variables and engage the right professional team, such as a wealth manager, attorney, and CPA, to discuss them within the context of your own situation.
Let’s explore the variables, though, starting with why it’s important to consider the scope of your kids’ employment and how they’re being paid. For this to work, the kids will need to actually be doing work beyond the scope of typical day-to-day chores and childhood expectations. Are the kids making inventory, packing items, taking product pics, writing descriptions, or acting as cute, low-effort mascots with a payment attached? The first three can be real work; the last one would likely require some crafty marketing spin to pass the sniff test.
The entity structure and tax elections are important here too. Is the LLC a disregarded entity, S-corp, C-corp, or partnership? How is it treated for tax purposes?
Structure matters because payroll tax treatment shifts by entity. It can dictate what’s required for tax withholding, what’s considered for tax liabilities generated for the parent and the kids, and where it becomes effective and efficient for long-term objectives.
Also, the business will need to show profit frequently enough to avoid the Hobby Rule, be able to substantiate the payments made out to the kids for their efforts, and maintain bookkeeping records needed to accurately file tax returns each year. The simple craft-time activity and Etsy shop can easily turn into another job for mom and dad.
The final consideration: what’s the long-term goal here? Is this simply for the sake of creating a job for the kids, or are you desiring to scale this long-term? Some businesses want to take care of their own while building value for a future sale or further investment. All things to keep in mind in case you’re looking to build an e-commerce empire from the kitchen table.
Understanding some of the variables at play here, you should be armed to continue your research and actively engage with your professional team for support in establishing this pursuit. First, ask a CPA for guidance, commonly around how the LLC will be taxed, whether payroll software and W-2s are needed, applicable state labor considerations, and best practices as you get started. Then write each child’s tasks in plain English, set a pay rate you would give a stranger for similar work, keep timesheets, keep receipts, and deposit pay into a child bank or custodial account before funding the Roth.
Use the art shop as a real shop. Price the pieces, track the cost of supplies, keep the listing pages, save sales receipts, and separate “kid work” from “parent help.” If the kids are very young, skip anything unsafe or fake. Let them paint, sign cards, pick titles, or help with age-safe tasks.
The trapdoor is mixing three roles: artist, employee, and family mascot. If your child creates the art, decide whether the business is paying wages for creative labor, buying finished pieces as inventory, or selling the art as a platform for the child. Pick a model with your CPA and stay consistent, because sloppy flows create sloppy tax files.
An Alternative to Consider
If the art table empire seems daunting or less practical than originally expected, the premise of your question seems to be setting aside funds for your children’s eventual retirement. With the OBBBA passed in 2025, the U.S. Treasury launched and maintains newly released “Trump Accounts” for kids.
Trump Accounts are built off the traditional IRA framework. Unlike custodial IRAs, there is no child income threshold to meet for contributions, and you can begin funding at any point from birth to the age of 18.
The deviation from your inquiry? The account operates closer to an after-tax traditional IRA with non-deductible contributions, rather than a true Roth IRA. This means that most contributions are already taxed on the way in, and the growth within the account is tax-deferred.
Folks are able to make contributions to accounts now that the launch date of July 4, 2026, has passed, with a $5,000 yearly aggregate cap from individuals, with employer, philanthropic, and government pilot payments potentially applicable.
After the growth period ends at age 18, IRS guidance says the special Trump Account rules largely fall away and the account generally follows traditional IRA rules, including rollovers, Roth conversions, and ordinary-income tax treatment. It also says the written agreement may transfer the Trump Account assets right after the growth period to a traditional IRA held by the same trustee, which creates the path you described: Trump Account, transfer to traditional IRA, then Roth conversion.
The Roth conversion is usually taxable to the extent it contains pre-tax dollars and earnings; amounts tied to basis get different treatment. That may still be attractive at age 18 if the child has a low-tax year, but it belongs in a tax-year plan, rather than a reflex. Finger paint today, Form 1099-R later. Childhood is magical, isn’t it?
Bottom Line: If the kids have real wages, the custodial Roth is the cleaner win. If they qualify for a Trump Account, I would treat it as a useful extra bucket, especially with eligible seed or outside contributions, but I would avoid letting the shiny label distract from the boring rule: real work, fair pay, clean files. Assess your options with your professional team; they’ll help you assess your options and get a plan in motion.
Send your Ask Tim question our way, especially if it involves kids, taxes, retirement, or a suspiciously ambitious Etsy shop. We are happy to help you think through the moving parts before the glitter hits payroll.