You can't pay your kids for doing household chores and call it "compensation"/earned income for purposes of contributing to an IRA (Traditional or Roth).
You are probably mixing up one of the other situations.
1. If your family has a business, you can employ your children, in that business, and they can make IRA contributions, Kids under 18 are also exempt from FICA (social security and medicare) tax for wages from the family business.
2. If you child works as a household employee (or as a "business"), for other people (e.g. baby sitting and lawn mowing), not just family, that income can be eligible for IRA contributions.
Reference: https://www.investopedia.com/articles/personal-finance/110713/benefits-starting-ira-your-child.asp#:....
Q. : Do kids or parents need to pay taxes or report for custodial roth ira's (assuming your child does qualify to have a Roth IRA)?
A. The kid. But, most likely, no reporting will be needed. Roth contributions are not reported on a tax return (there is no deduction). The IRA financial institution will issue a form 5498. If a distribution is taxable, the kid will have to file a tax return if needed.
This answer has been verified for accuracy by an Intuit expert employee
