MARK KOHLERMain Street Professionals, Main Street Professionals, Main Street Professionals, Main Street Professionals, Main Street Professionals, LLC · Owner at Main Street Professionals, LLC

The Secret to Tax-Free Money for Grandkids

11 Oct 2025 · 0 min

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0:21

In this segment, Speaker B explains a tax‑savvy method for grandparents who want to help fund a grandchild’s Roth IRA. Rather than making a direct gift—which offers no business deduction—the grandparents can pay the grandchild for legitimate work in the family business. By issuing a 1099 to the parent (who reports the income on Schedule C) and then having the parent pay the child, the child earns taxable wages that qualify for Roth IRA contributions, while the business secures a deductible expense and avoids payroll tax pitfalls. The dialogue highlights the distinction between gifts and earned income, the role of payroll tax exemptions, and why a Roth IRA is a valuable, tax‑free vehicle for the grandchild’s future.

Does the payroll tax exemptions apply to grandchildren?
Here's the trick. So grandparents over here and they want to pay grandchild for helping legitimate in the business and then they want to fund the grandchild's Roth ira. That's really what they want to do. Because grandparents know that a grandchild Roth IRA is gold. They want to teach their grandchild to have a Roth
ira. But
if they just put money in it, it's a
gift.
There's no write off. And if they pay the kids out of their business, they got to do a W2 and withhold FICA. And that sucks. So how in the world do we get this money over here? Well, what you do in your business is you 1099 the manager of your grandchildren. So I'm going to 1099 the parent and the parent is going to pay the grandchild for working in the business and the grandchild is going to contribute to the Roth IRA. When you 1099 your kids, you get a write off. So you could say, all right, I'm going to pay this teenager six grand, but I'm going to have 1099 the parent, they're going to put it on a schedule C and pay their child who are exempt from withholding fica and then pay the grant grandchild or child in your case, and zero out the tax return. So 6k in, 6k out, zero tax grandchild drops six grand. You just end up with six grand in the Roth IRA and you're teaching your grandchild about building wealth.