I Put My Toddler on Payroll. Here's Why.

0:00Nicole Lapin:Recently, I went to Atlanta for a conference. Long-time listeners will know that I got one of my first jobs as a baby reporter and anchor in Atlanta. A girl from LA completely on my own, and it felt like the biggest adventure of my life. When I lived in Atlanta, I was a vegan. And one thing you don't know about Atlanta, unless you've lived there, is that it has some of the best vegan food in the country. Vegan soul food, vegan tacos, vegan sushi, they have it all. Whenever I go back, I can remember that time in my life when everything felt possible. I wish I could go back in time and give that girl the biggest hug and tell her how much I love her.

0:36Nicole Lapin:I also remember how worried she was about money. I don't carry that same fear anymore, but some habits stick, and I still never turn down a little extra cash. That's why I list our space on Airbnb while we travel. It just makes me feel better to know that I am making a little extra money even while off adventuring myself. And what makes that idea feel much more manageable now is the co-host network. You can connect with a local co-host who has hosting experience and can help take care of the important details. A co-host can help create your listing, manage reservations, and make sure everything runs smoothly for guests during their stay.

1:16Nicole Lapin:Honestly, it just feels like a practical way to make better use of our space while also bringing in a little extra cash from time to time. Find a co-host at Airbnb.com slash host. Football is back and the energy right now is everything. Teams are locked in and every fan is believing in a game plan. That's exactly the vibe I want us to bring to our money this September. And U.S. banks smartly checking and savings can help us get everything we need to get our financial goals into the end zone. With real people and smart tools to track our spending, we get the visibility to know exactly where we stand.

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3:11Nicole Lapin:Get started today. All right, let's talk about how to make our kids rich. And if you're not a parent, please send this to a loved one who has kids or just save it for yourself later if you ever decide to do the parent thing yourself. I mean, on most days, most days, I 10 out of 10 recommend it. The reason we're talking about this today is because I got a DM from a listener. I'm going to read it to you right now. Dear Nicole, my son is the same age as your daughter. I think he's two. My daughter is a little bit younger, but so close, so cute. I just want to make sure that he has more money than I did growing up.

3:43What are you doing for your daughter that I can do for him? Thank you. Love the pod, Lauren. Lauren, thank you so much. I love you. I love this question. I also have some questions for you and anyone else who has toddlers right now. Like, first of all, where are they going? My daughter is constantly making a run for it. Is this normal? where is she trying to go does she know something i don't i have many many questions and she also literally eats everything i remember when i had a puppy and she went through this stage and now my human puppy is doing the very same thing i had a guest here in the studio the other day and the guest wanted to meet my daughter and so she came in and instead of being snuggly and cute and all that stuff with the guest she waddled right up to her licked her water glass and then licked my water glass is your toddler doing this are the kids all right call me back let me know so back to your question.

4:32I love it. It feels so, so familiar. I have been talking to one of my best friends about this. One of the most special parts about being a parent that I wasn't expecting is becoming the parent that I wish I had. Not trying to make myself cry on my own podcast, but really it is a cool thing. It is a very special thing. And whether or not you had an awesome relationship with your parent or parents or not, I think very few of our parents knew to open a custodial Roth IRA for us when we were in diapers. But we money rehabbers are weird like that. So let me break down the specific steps that I have taken to make sure that my daughter is rich.

5:12I opened three accounts for her, a 529 account, a custodial Roth IRA, and a custodial brokerage account. I talked about this in another episode, so I'm just going to link that in the show notes so that I don't talk to you forever about these accounts because I definitely, definitely could. Someone truly has to stop me. But I will give you a few updates on what I've been doing since that episode aired. So it was just Mother's Day and some of my girlfriends very kindly asked if they could send flowers or a gift for me, which was very, very sweet. One thing that I'm doing that might feel a little bit awkward, but I fully believe in it, I'm sharing the YouGift link for Her529 with my friends and family for all holidays.

5:51Now, most 529 plans have a feature that lets people contribute directly to the account as a gift. Do I get some side eyes?

5:58Nicole Lapin:Yeah. Does it feel a little intense for Mother's Day or Toddler's Birthday Friday? Maybe. Do I care? Not even a little bit. And here's another update. I have to give you a quickie background first. I was a public school kid. My husband was a public school kid. We are very pro-public school. But there are some very, very cool private schools opening in our area. So I am becoming private school curious, shall we say. And if we do decide to pay for private school, So we are going to aim to use tax-free money. Now, Lauren, you might be interested in this as well. So here's how you would do it. If you own a business, you might be able to hire your kid.

6:38By the way, this is how a custodial Roth IRA can work. So if you own a business, your kid could model for your social media. That's pretty much the only thing that little, little kids can do. Once they get older, you can really put them to work. They can clean your desk. They can trade your paperwork, organize your folders. and then you can pay them a reasonable wage for real work. The reasonable part is important. You can't just pay them a million dollars for organizing paperclips. What I'm doing is I'm paying my daughter up to the standard deduction. In 2026, that's$16 ,100 for single filers and$32 ,200 for married couples filing jointly.

7:13I'm guessing your kid is also not married, so we're probably talking about the$16 ,000 maximum. I'll say it one more time. The work has to be legitimate. The pay has to be reasonable. I had tax strategist superstar Carlton Dennis on the pod, and this is what he had to say about it.

7:27Nicole Lapin:What should people keep in mind when they're putting their kids on payroll? You have to keep in mind reasonable compensation. I know we all want to max out$16 ,100,$16 ,100. That's the new standard deduction. What that means is that you can pay children up to$16 ,100 without them needing to file a federal tax return. Depending on your state, you may still have to file a state tax return because states have different standard deductions. But let's just stick with federal for right now. The big thing is that when you're employing children, they have to be doing reasonable work and making reasonable compensation.

7:56A lot of taxpayers understand that they can make their children child models, but are they actually child models? Are you actually taking photos? Are you just keeping some photos inside of your iPhone? You need to be intentional about it. It needs to be on the calendar. You need to create a contract with them. You need to have a bona fide intent of what they're doing, and you need to transfer the money to them. The smart thing to do is also to take it a step further and to look at a Roth IRA. You can set up a custodial Roth IRA for your children, tuck away another$7 ,000 for them. And that money is growing tax-free in a tax-advantaged nature.

8:25And for many taxpayers who start this process very early, I believe at the age of five, you can put in 7 ,000. And by the time your child is 60 years old, without making one additional contribution, there should be nearly about a million to a million one inside of that account. So that's a very powerful wealth-building tool for an entrepreneur that wishes to get their children involved. I think it's 7 ,500. 7 ,500. Yes. For the Roth IRA 7 ,500. And so is that what you did with your daughter? Yeah. So we're placing my daughter on payroll. We didn't give her the full 16 ,100. We gave her just enough to where we can make the full contribution into the Roth IRA.

9:01And that was intentional. One, I don't believe there are too many, you know, two-year-olds making 16 ,000 in the year. I can't spot too many of them online. But that being said, because of the amount of involvement that my daughter did have as a child model supporting us on social media. We decided to make that contribution to her Roth IRA after we made the payment to her. And you alluded to how powerful the Roth can be because the tax treatment, when you take that money out, it comes out tax free. A lot of people don't realize that when they take their traditional IRA or their 401k out, you have to pay taxes.

9:34And the reason why I'm always going to advocate for the Roth, especially right now, is because one, we're in the lowest tax period that we've ever been in, at least in the last 50 years. This is the lowest tax rates that we've ever had. And two, when I ask people, do you think taxes are gonna go up in the future? Most people will tell me yes. I mean, nine in 10 people tell me, I feel like taxes are eventually gonna go up. So if you think taxes only have one direction, which is up, does it make financial sense to just put everything into a traditional or a traditional 401k, knowing that you have no idea of where those tax rates are gonna be?

10:07When you can make the sacrifice right now, go Roth 401k or Roth, IRA, pay the tax to know and have that peace of mind that when you draw it out later, it's 100 % tax free. So I pay my daughter below the standard deduction. She doesn't owe federal income tax on that money. And my business gets a tax deduction for her wages. And here's where I'm closing the loop. The money is now in my daughter's name, where it can be used for her expenses like private school tuition. Instead of paying tuition with money that was taxed at your higher tax income bracket, you're potentially shifting income into a lower tax environment legally.

10:43This is different from 529 plan contributions. 529 contributions could be used potentially in some states to pay for private school, but 529 contributions are made after tax and they're not tax deductible.

10:56Nicole Lapin:Now, of course, there is an obligatory caveat. Payroll taxes can differ depending on your specific business structure and your kid's age. So this is absolutely something that you want to run by a financial planner first. If you need one, you can reach out to our firm, Private Wealth Collective. The link is in the show notes. So beyond these accounts, here's something else that my husband and I did. We took out a life insurance policy. Becoming a parent is one way of forcing you to really confront your own mortality in honestly a way I was not expecting. I've talked about my death way more since becoming a mom because it is a really heavy reality.

11:31If something happens to me, my kid's financial future might disappear overnight. That is some heavy, heavy stuff. So life insurance for me as a parent is non-negotiable. Sorry, I wish it was different. It is not a fun time to think about your own debt. But here we go. Now, there are two main types of life insurance policies, and I want to be really clear about the difference here because a lot of people who talk about this have a secret agenda. I do not at all. So I got you. The two main types are term life insurance and whole life insurance. There are a zillion different flavors of each, but those are the two big umbrellas.

12:10Term life insurance is exactly what it sounds like. You're covered for a specific term. So you pick a window, typically 10 years, 20 years, 30 years, and you pay a fixed monthly premium. If you die during that period, your beneficiary or beneficiaries receive a death benefit. If you don't, if you live, which is the goal, the policy expires and you walk away alive and with nothing. No payout, no cash value, no financial asset, just peace of mind that your family was indeed protected during the years that they needed it most. Now, whole life insurance is permanent coverage that lasts your entire life as long as you keep paying the premiums.

12:47The premiums are significantly higher than term coverage, sometimes 5 to 15 times more expensive for the same death benefit. But a portion of what you pay builds into what's called cash value. That cash value grows at a guaranteed rate over time and you can borrow against it. It's a financial asset that accumulates basically inside the insurance policy. On its face, a whole life insurance policy might sound better. Term life insurance, you just heard me say where you might end up getting$0 at the end because you're alive, might sound like a waste of money and I get that. And whole life insurance agents will pitch you so, so hard on the cash value component.

13:27it. And look, it is real. You can borrow against it for down payment. You can use it as a tax advantaged savings vehicle. You can pass it down as part of your estate. The premiums are so much more expensive and the returns on that cash value are generally modest compared to what you'd be earning by investing in the stock market. So what did I specifically do? I got term coverage and I invested the difference. I got a 20 year policy. So if anything happens to me before she's age 21, she is covered. At the time the policy expires, she'll be an adult with her own income, and my financial responsibilities to her in that immediate survival sense will be much lower.

14:08The reason I chose term over whole basically comes down to this. I'd rather take the money I would have spent on higher whole life insurance premiums and put that directly into the market myself, into her 529, into her custodial Roth IRA, into my own retirement. Sorry, by the way, my daughter can take out a loan for college. I cannot take out a loan for my own retirement. I trust myself to invest that difference more than I trust it sitting inside an insurance product earning a guaranteed but modest rate of return. Now, I want to be really clear here. Whole life is not a scam. For some people, particularly high net worth individuals who have maxed out other tax advantaged accounts and need additional estate planning tools, whole life makes a lot of sense.

14:54But for most parents, the vast majority in their 30s, let's say, trying to protect their kids while they're also building wealth, term gives you the coverage that you actually need at the price that does not crowd you out of other financial goals. The bottom line is get life insurance. A healthy 35-year-old can probably get a 20-year$1 million term policy for somewhere in the ballpark of 50 to 70 bucks a month. That is a very small price to pay for a very large peace of mind. Use comparison sites to shop rates online. Don't just take whatever your employer's benefits package offers because that coverage is usually not enough and it also disappears the moment you change jobs.

15:33So Lauren, these are the things that I have done to grow wealth for my daughter so far. And oh, actually DM me because I have a rich moms group on Instagram where I talk about this stuff all the time and I would love for you to join us and we can talk about whether it's normal for our kids to like every surface in the house. I would legitimately love that. Everyone is invited to the party and I will keep you posted on everything that I'm doing to make my daughter rich so that you can copy and paste if you want. For today's tip, you can take straight to the bank.

16:00Nicole Lapin:If you have a windfall coming in, like a bonus, an inheritance, proceeds from selling a home, think about superfunding your kids 529 all at once instead of dripping it in monthly. The IRS allows you to front load five years worth of contributions in a single year, so up to$95k per kid in 2026 if you're single, or$190 ,000 if you're married filing jointly without triggering the federal gift tax, as long as you don't make additional contributions to the kid's account for the next five years. The reason that this is so powerful isn't just the lump sum, it's that you're maximizing the number of years that that money sits in the market compounding.

16:34A dollar invested today is worth more than$5 invested in five annual installments. installments. If you have the cash, front-loading beats dollar-cost averaging here. Talk to a financial advisor before you do it because the paperwork, specifically IRS Form 709, has to be filed correctly. But this is one of the most underused legal moves in the education savings playbook out there.