As a dental practice owner, you’re constantly looking for ways to build long-term wealth for your family while running your business efficiently. One of the most powerful yet underutilized strategies combines legitimate business needs with multi-generational wealth building: employing your children in your practice to fund their Roth IRA contributions.
With IRA contribution limits rising to $7,500 for 2026, now is the perfect time to give your employed child a strategic raise that could be worth hundreds of thousands of dollars by the time they reach retirement.
The Power of Earned Income and Roth IRAs
Many dentists already understand this wealth-building strategy, but if you’re new to the concept, here’s why it’s so compelling. Children of any age can contribute to a Roth IRA—but only if they have earned income from legitimate work. You can’t simply gift them money to put in a Roth IRA. They must earn it.
This is where employing your child in your dental practice creates a perfect opportunity. Whether they’re cleaning the reception area, filing patient records, helping with inventory, managing social media, or assisting with administrative tasks, if the work is legitimate and the compensation is reasonable for the job performed, your child has earned income.
That earned income becomes the gateway to Roth IRA contributions, which offer tax-free growth for potentially 50, 60, or even 70 years. Imagine the compounding potential of $7,500 invested at age 10 or 15, growing completely tax-free until retirement. The numbers are staggering.
The 2026 Contribution Limit Increase
For 2026, the IRA contribution limit has increased to $7,500—up $500 from the previous limit. If your strategy has been to give your child a raise each time the contribution threshold increases, this is your cue.
The goal is simple: structure your child’s compensation so that after payroll taxes are withheld, they net exactly $7,500—the full amount they can contribute to their Roth IRA. This requires some calculation, but the math isn’t complicated once you understand the pieces.
Understanding the Tax Withholding Picture
Here’s where many practice owners get confused, but the reality is simpler than you might think. For 2026, the standard deduction is $16,100. If your child’s total earnings fall below this threshold, there’s no federal income tax withholding required. In most states, there won’t be state income tax withholding either, though you should confirm your specific situation with your dental CPA. Some localities do impose city taxes that could affect the calculation.
For most employed children earning less than the standard deduction, the only taxes being withheld are the employee’s share of Social Security and Medicare taxes, which combine for 7.65% of gross pay. This is the key number we need for our calculation.
The Math Behind the $500 Raise
To calculate the correct gross pay that will net your child exactly $7,500 after FICA withholding, you need to work backwards from the target amount.
The formula is: Target Net Pay ÷ (1 – Tax Rate) = Required Gross Pay
Plugging in our numbers: $7,500 ÷ (1 – 0.0765) = $8,121
That’s the gross pay amount you should set for your child. After the 7.65% FICA withholding is deducted ($621), your child nets exactly $7,500—the perfect amount for their maximum Roth IRA contribution.
Compared to the previous contribution limit that required roughly $7,621 in gross pay, you’re looking at a $500 raise to accommodate the new $7,500 limit. It’s a meaningful increase that continues building their tax-free wealth foundation.
The Triple Benefit for Your Practice and Family
This strategy accomplishes three important goals simultaneously, making it one of the most efficient wealth-building approaches available to dental practice owners.
First, your practice receives a legitimate business tax deduction. The wages you pay your child are a deductible business expense, just like any other employee compensation. This reduces your practice’s taxable income, lowering your overall tax burden.
Second, your child gains valuable work experience and learns responsibility. They’re not just receiving an allowance—they’re earning money through actual work. They learn about showing up on time, completing tasks, workplace expectations, and the connection between effort and compensation. These are life lessons that extend far beyond the financial benefits.
Third, and most importantly, you’re establishing a foundation for substantial tax-free wealth. Every dollar contributed to a Roth IRA grows tax-free forever. Your child pays no taxes on the growth, no taxes on the earnings, and no taxes when they eventually withdraw the money in retirement. Starting this process at a young age creates decades of compounding that can result in six or seven-figure retirement accounts from relatively modest annual contributions.
Making Sure You Do It Right
While this strategy is powerful, it must be implemented correctly to withstand IRS scrutiny. The work your child performs must be legitimate and age-appropriate. The compensation must be reasonable for the work performed—you can’t pay your 12-year-old $50,000 to empty trash cans once a week.
Documentation is essential. Keep records of hours worked, tasks performed, and how the compensation was determined. Treat your child like any other employee with proper payroll processing, including issuing a W-2 at year-end.
Your dental CPA can help ensure you’re structuring this arrangement properly, calculating the correct withholding amounts, and maintaining the documentation necessary to support the deduction if ever questioned.
Beyond the Numbers: Building Financial Literacy
There’s an intangible benefit to this strategy that goes beyond the impressive financial calculations. When your child sees their Roth IRA balance growing year after year, they develop an understanding of investing, compound growth, and long-term financial planning that most young people never receive.
They learn that wealth is built through consistent effort over time, not overnight windfalls. They see firsthand how starting early creates massive advantages. These lessons often prove even more valuable than the money itself.
Take Action Now for 2026
If you already employ your children in your practice, review their current compensation with your dental CPA to determine whether a raise to $8,121 (or the appropriate amount based on your specific tax situation) makes sense for 2026. If you haven’t yet implemented this strategy but have children who could perform legitimate work in your practice, now is an excellent time to explore the opportunity.
The combination of the increased contribution limit and the power of decades of tax-free growth makes 2026 an ideal year to establish or enhance this wealth-building approach.
Contact us today to discuss how to properly implement or optimize a family employment strategy that builds wealth while supporting your practice operations. We’ll help you navigate the tax implications, ensure proper compliance, and structure compensation that maximizes benefits for both your business and your family’s financial future.