What Qualifies as “Earned Income” for a Minor’s Roth IRA?

The main rule for a child’s Roth IRA fits in one sentence: no more can go in than your child earned from working that year, up to $7,500 for 2026. The tricky part is the word “earned.” A paycheck from the town pool clearly counts. But what about $60 from the neighbors for a Saturday night of babysitting, a summer of mowing lawns, or the $20 you pay your teen to wash the car?

The answer decides how much can go in, what paperwork your teen needs, and whether they owe self-employment tax. Mistakes have a price: money put in beyond what your child earned is an excess contribution, and it’s taxed every year until it comes out. This guide is a compliance checklist for parents. It covers what the IRS counts as earned income, how W-2 jobs, babysitting, lawn care, and family-business jobs are treated, and which records to keep for each. The Custodial Roth IRA explains how the account itself works, and Comparing Investment Accounts for Kids: 529 vs. UTMA vs. Roth IRA vs. 530A shows how it fits with the other options.

What counts as earned income

The IRS’s word for earned income is “compensation,” and its definition is refreshingly short. “Generally, compensation is what you earn from working,” according to IRS Publication 590-A. Wages, salaries, tips, bonuses, and other pay for personal services count, and so do commissions and net earnings from self-employment. Earnings from property don’t count, including interest, dividends, and rental income, and neither do pensions, annuities, or pay deferred from an earlier year.

Two points trip parents up. First, pay counts even when your teen owes no income tax on it. The wages are still part of your teen’s income, and only amounts excluded from income altogether fall outside the definition, Publication 590-A explains. Second, money that isn’t pay for work never counts, however your child came by it. An allowance, a birthday check, and dividends from a custodial account all fail the test. Investment income follows its own tax rules, which Navigating the 2026 Kiddie Tax Thresholds covers.

Here’s how the common kinds of kid money sort out.

Based on IRS Publications 590-A and 926 and the Journal of Accountancy.

How earned income sets the 2026 limit

For 2026, the most that can go into your child’s IRAs is $7,500 or their taxable compensation for the year, whichever is less. The dollar limit rose from $7,000 in 2025, and it covers a person’s traditional and Roth IRAs combined, according to Publication 590-A. Everyone’s contributions count toward that one limit: yours, a grandparent’s, and your child’s own.

The earnings have to come from the same tax year as the contribution. Contributions for 2026 can be made until April 15, 2027, the tax-filing deadline, not counting extensions. If you contribute between January 1 and April 15, tell the provider which year the money is for. Otherwise the provider can assume, and report to the IRS, that it’s for the current year, Publication 590-A notes. That matters for a teen whose 2026 summer job supports a contribution when their 2027 earnings haven’t happened yet.

How much counts depends on the kind of work:

• Wages. The amount in box 1 of your teen’s Form W-2, which the IRS treats as compensation.
• Self-employment. Net earnings from the work, reduced by the deductible half of the self-employment tax. Business expenses come off first, so the figure is usually smaller than what customers paid.
• Both. Add them together. A loss from a side business doesn’t reduce the wages from a job, Publication 590-A says.

One other kind of money shares the same limit. Leftover 529 money rolled into the beneficiary’s Roth IRA counts toward the same annual limit and needs the same earned income, according to Saving for College, so a working teen’s earnings can’t support both a full contribution and a full rollover in the same year. The SECURE 2.0 Act: Rolling 529 Funds into a Roth IRA has the details.

Here’s how the same $3,000 turns into Roth IRA room, depending on where it came from.

• Counts toward the limit
• Business expenses
• Half of self-employment tax
• Doesn’t count

Show the numbers

Roth IRA room from $3,000, depending on where it came from

Where the money came from	Counts toward the limit
Lifeguard W-2 job	$3,000
Babysitter Household employee	$3,000
Lawn care Self-employed	$2,416
Allowance and gifts	$0

Hypothetical 2026 examples for a dependent student under 18 who takes in $3,000 for the year. The lawn care business spends $400 on supplies and owes about $367 of self-employment tax, and half of that tax, about $184, comes off too. Self-employed babysitting would be figured the same way. Figures are rounded to the nearest dollar.

Three of the four produce Roth IRA room, but not the same amount. The W-2 wages and the household-employee wages count dollar for dollar. The self-employed teen’s room is about $584 smaller, because his $400 of expenses and about $184, half of his self-employment tax, come off first. The allowance and gifts produce no room at all.

W-2 jobs: the simplest case

A regular job with a paycheck is the cleanest way to qualify. The employer handles the paperwork, your teen gets a Form W-2 early the next year, and box 1 shows the compensation that counts. Box 1 is pay before Social Security and Medicare taxes come out, so those withholdings don’t shrink the figure. Tips count too, and tips your teen reports to the employer are included in the box 1 total.

Before the first shift, check the child labor rules. Under federal law, 14 is the minimum age for most nonfarm jobs, and 14- and 15-year-olds may work outside school hours in jobs that aren’t in manufacturing, mining, or hazardous work, according to the U.S. Department of Labor. Lifeguarding has its own rule: 15-year-olds, but not 14-year-olds, may lifeguard at traditional swimming pools and water parks once they’re trained and certified by the American Red Cross or a similar organization, under 29 CFR 570.34. States can add their own requirements. Federal law doesn’t require a work permit, but some states do, FindLaw notes.

High School (Ages 15 to 18) covers the rest of what a first paycheck can teach, from reading a pay stub to opening a Roth IRA.

Babysitting, lawn care, and other gigs

Informal work counts too. Activities like babysitting, pet sitting, and mowing lawns can qualify a minor for Roth contributions, Fidelity notes. The question is how the IRS classifies the work, because that decides the paperwork, whether self-employment tax applies, and how much counts.

There are two possibilities, and the test is control. A worker is a family’s household employee if the family can control not only what work is done but how it’s done, according to IRS Publication 926, the guide for household employers. The IRS lists babysitters and yard workers among its examples of household workers. If only the worker controls how the work is done, the worker is self-employed, and a self-employed worker usually brings their own tools and offers services to the public as an independent business.

When your teen is a household employee

Picture your 15-year-old babysitting in a neighbor’s home, following the parents’ rules about dinner, screens, and bedtime. In the IRS’s own example, a babysitter who works in the family’s home and follows the family’s specific instructions is a household employee, and it doesn’t matter whether the work is full time or part time. For a teen, that’s the simpler outcome:

• No Social Security or Medicare tax. Wages paid to an employee who is under 18 at any time during the year don’t count for those taxes unless household work is the employee’s principal occupation, and for a student it isn’t, Publication 926 explains.
• Usually no W-2. A household employer files a W-2 only for Social Security and Medicare wages of $3,000 or more in 2026, or for wages with income tax withheld. When no W-2 is required, the IRS encourages the family to give the worker a receipt showing the dates worked, the pay, and a general description of the work.
• Every dollar counts. The pay is wages, so the full amount supports a Roth contribution, and your teen reports it on their Form 1040.

When your teen is self-employed

Now picture your teen running a mowing business: their own mower, a flyer on the community board, and regular customers who just want the grass cut. That matches the IRS’s example of a self-employed worker, someone who runs a lawn care business, offers it to the public, and provides their own tools. Childcare a teen provides in their own home generally isn’t the other family’s employment either, Publication 926 says. Self-employment works differently:

• Self-employment tax. Once net earnings from self-employment reach $400 in a year, your teen owes self-employment tax, 15.3% for Social Security and Medicare, and must file Schedule SE with a tax return. The rules apply no matter how old the worker is, according to the IRS.
• Expenses come off first. Business income and expenses go on Schedule C, and the profit, not the total collected, is the starting point.
• Less counts. Compensation is the net earnings minus the deductible half of the self-employment tax, so a self-employed teen can contribute somewhat less than they took in.
• Don’t wait for a 1099. Form 1099-NEC reports payments made in the course of a business, and only once they total $2,000 or more for payments made after December 31, 2025, according to the IRS. Neighbors paying a teen from their own pockets won’t send one. The income is still taxable, and it still counts.

Plenty of arrangements fall in between, like a teen who mows for three neighbors with their own mower but does exactly what each one asks. Self-employment tax can apply, so Fidelity suggests checking with a tax professional, and two habits keep you safe. Ask a tax preparer to make the call when your teen files. And if you contribute before that’s settled, base the contribution on the smaller, self-employed figure, which can’t turn out to be too much.

Worked example: a summer of mowing lawns

Say your 16-year-old, Owen, runs a small mowing business in 2026. Customers pay him $3,000 over the season, and he spends $400 on gas, trimmer line, and other supplies. Here’s how that becomes his Roth IRA limit, following the steps on Schedule C and Schedule SE.

Hypothetical example, rounded to the nearest dollar. Based on IRS Publication 590-A and Schedule SE.

So the most that can go into Owen’s Roth IRA for 2026 is $2,416, not $3,000. If you contributed the full $3,000 for him, $584 would be an excess contribution. Owen owes no federal income tax on his profit, because a dependent’s standard deduction is the larger of $1,350 or earned income plus $450, up to $16,100 in 2026, under IRS Revenue Procedure 2025-32. But he does owe about $367 of self-employment tax, and he has to file a return to pay it.

One more detail from Schedule SE: the $400 test applies after profit is multiplied by 92.35%, so self-employment tax starts at roughly $433 of profit. A teen who clears $300 over a summer owes no self-employment tax, and all $300 counts toward a Roth IRA.

Working for a parent’s business

If you own a business, hiring your child can be the most direct route, provided the job is real. When a child under 18 works for a parent’s sole proprietorship, or for a partnership in which each partner is the child’s parent, the pay isn’t subject to Social Security and Medicare taxes, and pay to a child under 21 isn’t subject to federal unemployment tax, according to the IRS page on family employees. The pay is generally still subject to income tax withholding, whatever the child’s age. And the exemption doesn’t apply if the business is a corporation, or a partnership with partners who aren’t the child’s parents. If your business is an LLC, ask a tax professional how these rules apply to it.

Federal child labor law lets children of any age work in a business their parents own, except in mining, manufacturing, or hazardous jobs, the Department of Labor says. Beyond that, treat it like any other job. Caron Mitchell, a CPA quoted in the Journal of Accountancy, recommends putting the child on payroll, which means a W-4, regular paychecks, and a W-2 at year’s end. The pay has to fit the work, too. A day on set for a business photo shoot might justify a large check, the journal notes, but the IRS is likely to object to $1,000 for a day of making copies. Keep a job description, timesheets, and a record of each payment.

Allowances, chores, and other gray areas

An allowance isn’t earned income. It’s a gift, and so is money handed over for the things family members do anyway. Paying your own child for household chores is murkier.

Payments to a child for domestic work in a parent’s home do appear in IRS guidance: they’re exempt from Social Security and Medicare taxes until the child turns 21, according to the IRS family employees page. But that rule is about payroll taxes, not about whether routine chores amount to a real job. Money paid for family chores generally doesn’t count, Mitchell told the Journal of Accountancy, partly because paying for chores runs into the unsettled debate over whether kids should be paid to help around the house at all. Her advice is to look for paid work outside the home, or for jobs that go well past the everyday work of keeping a household running.

The stakes are real. If the IRS decided your child’s chore money wasn’t compensation, every dollar contributed on the strength of it would be an excess contribution, taxed 6% a year until it came out. If you still want to go this route, make it look like a job: work you’d otherwise pay someone to do, at the going rate, with a written record of each task and payment, and a tax return that reports the wages. Talk to a tax professional first. Paying your teen to babysit their own siblings falls in the same gray area.

Allowances still have a place. They’re a good way to teach budgeting, as Grade School (Ages 6 to 10) explains, and a parent match on a teen’s real earnings, covered in The “Match” Program, rewards saving without stretching the rules.

The records to keep: a checklist

You don’t send proof of earnings when you contribute, so the records you keep are what back up each contribution if the IRS ever asks. If your child didn’t get a W-2, keep a log of their income to validate the contributions, Fidelity suggests. The system doesn’t need to be fancy. Mitchell recommends at least a spreadsheet, and payment apps like Venmo can help, the Journal of Accountancy reports. Here’s what to keep for each kind of work.

For a W-2 job

• The Form W-2, which arrives early the following year.
• Pay stubs, especially the last one of the year.
• A copy of the tax return, if your teen files one.

For household-employee pay

• A receipt from each family with the dates worked, the pay, and a short description of the work.
• Your teen’s own log of each job, as a backup.
• Bank deposits or payment-app history showing each payment arriving.

For self-employment

• A log of every job: the date, the customer, the work, the hours, and the pay.
• Receipts for expenses, such as gas, supplies, and equipment.
• Bank deposits or payment-app history for each payment.
• Schedule C and Schedule SE, when the tax return includes them.

For a business, the IRS doesn’t require any particular bookkeeping method, but the one you use must clearly and accurately show income and expenses, according to IRS Topic 305. A simple log kept up as the jobs happen, along with receipts, can meet that standard.

For a job in a parent’s business

• A written job description and timesheets.
• Payroll records, Forms W-4 and W-2, and proof of each payment.
• A note of how you set the pay rate, such as what you’d pay someone else for the same work.

For every year you contribute

• The year’s total earned income, with the math behind it.
• Form 5498, IRA Contribution Information, which the provider issues for each year’s contributions.
• A running total of all contributions, since contributions can always come out tax- and penalty-free.

How long should you keep it all? Generally for three years after filing, but if no return is filed, keep records indefinitely, according to the IRS guidance on how long to keep records. For a Roth IRA, keep the contribution history for as long as the account exists.

Should your teen file a tax return?

Sometimes filing is required, and it’s often a good idea even when it isn’t.

• Required with $400 of self-employment earnings. A teen with net self-employment earnings of $400 or more must file and pay self-employment tax, as covered above.
• Often not required for wages alone. Fidelity notes that a return isn’t required for a child who earns less than the standard deduction, $16,100 in 2026. That rule of thumb works for a teen whose only income is wages. Below that amount, a dependent teen owes no federal income tax on earned income, either.
• Needed to get withheld tax back. If an employer withheld federal income tax, filing is the only way to get a refund.

Filing anyway has real advantages. A return puts your teen’s earnings on record with the IRS, which is strong support for the contribution, and Mitchell recommends filing when contributing to a Roth IRA whether or not a return is required, the Journal of Accountancy reports. A filed return also starts the IRS’s usual three-year clock on those records. Without one, the clock never starts.

If too much went in

Mistakes happen, especially with gig income. A contribution above your child’s compensation for the year is an excess contribution, and it’s taxed 6% for every year it stays in the account, according to Publication 590-A. The fix is simple if you act in time:

1. Withdraw the excess and what it earned. Do it by the tax-filing deadline for that year, including extensions, and the excess is treated as if it was never contributed. Ask the provider for a return of excess contribution. Providers typically calculate the earnings for you.
2. Report the earnings. The earnings are taxable for the year the excess contribution was made. Since December 29, 2022, a correction made by the deadline, including extensions, isn’t subject to the 10% additional tax on early distributions, Publication 590-A notes.
3. Or carry it forward. If your child will have enough earned income next year, the excess can be applied to a later year’s limit instead, but the 6% tax still applies for each year it sits as an excess.

Where family gifts fit in

Your child has to earn the income, but they don’t have to supply the dollars. As long as your child has enough earned income, anyone can contribute to their Roth IRA, and a parent or other adult can make the contribution as a gift while your child keeps what they earned, the Journal of Accountancy explains. The limit is shared, though. If you contribute $2,000 for a child who earned $2,000, neither your child nor another adult can add more for that year, Fidelity notes. And each giver’s contribution counts against that giver’s annual gift tax exclusion, $19,000 per recipient in 2026, which The Impact of the 2026 Gift Tax Exclusion explains.

GoodNest helps with the giving part. Loved ones can give toward your child’s future from your child’s GoodNest page, often alongside a small keepsake like a book. GoodNest doesn’t hold or invest the money. Family send gifts straight to you by Zelle, Venmo, or PayPal, and you decide where they go next. For a teen with a paycheck, that can be their custodial Roth IRA, up to what they earned. If you choose a custodial Roth IRA as the destination on your child’s page, the page tells family that’s where their gifts go. The GoodNest Guide to Asking for Investments Instead of Toys has scripts for the conversation, and Discussing Wealth with Grandparents covers the family side.

For a child who doesn’t have earned income yet, the Roth has to wait, but other accounts don’t. The Complete Guide to 529 College Savings Plans and UTMA vs. UGMA: What’s the Difference? cover two options with no earned income requirement. A Trump Account doesn’t require earned income either, and it can take up to $5,000 a year in contributions, according to USAA. The 530A Trump Account Explained has more, and Comparing Investment Accounts for Kids lays out all four side by side.

The bottom line

Earned income is pay for work, and your child’s Roth IRA can take no more each year than they earned, up to $7,500 for 2026. W-2 wages count in full. Babysitting and yard work count as either a family’s household-employee wages or self-employment income, and self-employment counts only after expenses and half of the self-employment tax. A real job in a family business counts. Allowances, gifts, and investment income never do, and chores are a gray area best avoided.

To stay on the right side of the rules:

1. Decide which kind of work your teen does: a W-2 job, household-employee pay, self-employment, or a job in your business.
2. Start the paper trail now, with a log, receipts, and pay records.
3. After the year ends, total what counts, net of expenses and half the self-employment tax for self-employment.
4. Contribute no more than that, and no more than $7,500, by April 15, 2027, and tell the provider the money is for 2026.
5. File a tax return when it’s required, and consider filing when it isn’t.
6. Keep the records, and the account’s contribution history, for the long haul.

To see where a Roth IRA fits alongside a 529 plan, a custodial account, and a Trump Account, head back to Comparing Investment Accounts for Kids.

Frequently asked questions

Does babysitting money count as earned income for a Roth IRA?

Yes. Babysitting pay counts whether your teen is treated as the family’s household employee or as self-employed. The difference is in the paperwork and the amount. A sitter who works in a family’s home and follows the family’s instructions is generally a household employee, whose full pay counts and who owes no Social Security or Medicare tax while under 18 and a student. A self-employed sitter counts net earnings after expenses and half of any self-employment tax, and owes self-employment tax once net earnings reach $400.

Can I pay my child for chores and put that money in a Roth IRA?

It’s a gray area, and many tax professionals advise against relying on it. An allowance doesn’t count, and money paid for routine family chores generally doesn’t either. If the IRS disagreed with you, the contributions would be excess contributions, taxed 6% a year. Safer routes are a job with someone outside the family, a real job in a parent’s business with payroll records, or matching what your teen earns elsewhere.

Does my child need a W-2 or 1099 to contribute to a Roth IRA?

No. A W-2 is the simplest proof, but many teens earn money that never produces one. Families usually don’t issue W-2s to teen babysitters, and a 1099-NEC comes only from a business that paid $2,000 or more in 2026. Without a form, keep a log of each job, receipts, and payment records, and consider filing a tax return that reports the income.

Does my child have to file a tax return to contribute to a Roth IRA?

Not always. A return is required if your child had $400 or more of net self-employment earnings, and generally for a dependent with only wages once those wages pass $16,100 in 2026. Otherwise it’s optional, but filing documents the earned income behind the contribution and is the only way to get back any income tax that was withheld. If your child doesn’t file, the IRS says to keep records indefinitely.

What happens if we contribute more than my child earned?

The extra is an excess contribution, taxed 6% for each year it stays in the account. To avoid the tax, withdraw the excess and its earnings by the tax-filing deadline, including extensions. The earnings are taxable for the year of the contribution, but a timely correction isn’t subject to the 10% early withdrawal penalty. You can also apply the excess to a later year’s limit if your child will have enough earned income then.

Sources

• Internal Revenue Service, Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs), which includes the 2026 contribution limit.
• Jeff White, Saving for College, “529 to Roth IRA: Rollover Rules, Conversion Guide, and FAQs” (updated August 6, 2026).
• U.S. Department of Labor, Fair Labor Standards Act Advisor, “What kinds of work can youth perform?”
• Legal Information Institute, Cornell Law School, 29 CFR § 570.34, Occupations that may be performed by minors 14 and 15 years of age.
• Lisa Burden, FindLaw, “Wage and Hour Laws for Minors and Teens” (updated March 17, 2025).
• Fidelity Investments, “Turbocharge your child’s retirement with a Roth IRA for Kids”.
• Internal Revenue Service, Publication 926 (2026), Household Employer’s Tax Guide.
• Internal Revenue Service, “Self-employment tax (Social Security and Medicare taxes)” (reviewed June 27, 2026).
• Internal Revenue Service, “Form 1099-MISC and independent contractors”, frequently asked tax questions.
• Internal Revenue Service, Schedule SE (Form 1040), Self-Employment Tax.
• Internal Revenue Service, Revenue Procedure 2025-32, 2026 inflation adjustments, including the standard deduction and the annual gift tax exclusion.
• Internal Revenue Service, “Family employees”.
• Kelley C. Long, “The ins and outs of Roth IRAs for children”, Journal of Accountancy (October 11, 2022).
• Fidelity Investments, “Roth IRA for Kids”.
• Internal Revenue Service, Topic no. 305, Recordkeeping.
• Internal Revenue Service, “How long should I keep records?”
• USAA, “What is a Trump Account? A guide to the new IRC §530A accounts” (updated June 29, 2026).

This article is for general educational purposes only and is not tax, legal, or investment advice. Figures reflect federal rules for 2026 as of the date above, and the examples are hypothetical. Whether a particular job makes your child a household employee or self-employed depends on the facts, and state child labor rules vary. GoodNest does not provide tax, legal, or investment advice and does not hold or invest funds. For your family’s situation, consider consulting a tax professional or financial advisor.