Your Kid Made Real Money This Summer. Now What?

Because right now, the shoebox is full and the summer is half over.

If your kid has been mowing lawns, selling bracelets, or running a stand since June, they may be holding more cash than ever before. The earning taught one set of lessons; what happens to the money next teaches a different set. Most families nail the first part and improvise the second.

Improvising has costs. Shoebox cash evaporates into snacks. Records that don't exist can't answer tax questions in April. And the most powerful wealth-building move available to a working kid requires paperwork far easier to build in July than in February.

So pick a Sunday and walk through four questions: how much did you really make, does the IRS care, where should it go, and what do we do with the records? The whole thing takes an hour. All of it compounds.

Before taxes, before savings, before anything: teach the difference between money that came in and money that stayed.

Have your kid add up everything customers paid them. That's revenue, and it's the number they'll want to brag about. Then add up everything spent to earn it: supplies, ingredients, the poster board, gas money they owe you. Subtract. What's left is profit, and it's usually a humbling number.

A kid who sold $300 of lemonade but spent $120 on lemons, sugar, cups, and ice made $180, not $300. That stings for a minute. Then it becomes the most useful lens they own: could cups be cheaper in bulk? Was the fancy sign worth it? Should prices go up?

Write both numbers down, revenue and profit, on paper. Every conversation that follows runs on them, and so does every business your kid ever touches.

Probably not, but there's one rule every parent of an earning kid should know.

For self-employment income (which is what business profits are, even from a lemonade stand), the magic number is $400. If your kid's net profit for the year stays under $400, there's generally no filing requirement from that income alone. Cross $400 in net self-employment earnings, and technically a return with Schedule SE is required, because Social Security and Medicare taxes (15.3%) apply to self-employment income even when no income tax is owed.

Income tax is a separate question, and here kids have a shield: the standard deduction. For 2026, a dependent's standard deduction is roughly their earned income plus $450, up to the full single-filer amount of $16,100. Translation: a kid who earned $5,000 mowing lawns owes zero federal income tax on it. The 15.3% self-employment tax on profits over $400 is the one that surprises families.

For most kid stands, profits stay small and this is purely educational. But knowing where the line sits is itself a money lesson.

The ones you'll wish you had in April, and they're simpler than you fear.

A single notebook page or shared note on a phone, with four columns: date, what happened, money in, money out. "July 8, sold at pool, $47 in. July 9, supplies, $18 out." That's the whole bookkeeping system a kid business needs.

Why bother if no tax is owed? If profits cross $400 you'll need the numbers, and reconstructing a summer from memory is misery. The record also makes the Roth IRA move below possible: contributions must trace to real earned income, and with no W-2, your log is the documentation. Biggest of all, kids who track money treat it differently. Spending gets deliberate once it has to be written down.

If your kid rolls their eyes, frame it as keeping score. Every business they'll ever admire keeps books.

The classic framework is four buckets: spend, save, give, and (for business kids) reinvest. The percentages matter less than the existence of buckets.

Spend money is theirs, guilt-free; a kid who can't enjoy any earnings learns that work is pointless. Between 20% and 40% keeps motivation alive.

Save money targets something specific with a name and a price: the bike, the switch, the trip. Vague saving teaches nothing; named saving teaches delayed gratification with a finish line. Writing the goal down and tracking progress toward it is half the trick; some families use a chart on the fridge, and tools like Foundra Kids include simple savings-goal trackers built for exactly this conversation.

Give money, even 5%, plants the idea that money is partly for the world around you. Let the kid pick the cause.

And reinvest money stays in the business: better supplies, bulk inventory, a nicer sign.

This is the single most adult question a kid entrepreneur can face: take the money, or grow the thing?

Walk through it concretely. If they made $180 and put $40 into a bulk order of cups and mix, their cost per glass drops and August profits climb. If they buy a second cooler, they can sell at two spots with their partner. Or they can pocket everything now and the business stays exactly the size it is.

There's no right answer, and that's the point. Kids should feel the tension: sure money now versus maybe-more later. Let them decide and see the result by Labor Day; either outcome teaches.

One rule worth imposing: reinvestment comes from the reinvest bucket, decided in advance, not raided from savings in a moment of enthusiasm. Businesses that eat their founder's savings are a pattern better met first at cooler-and-cups scale.

Here's the one that sounds too good to be true and isn't: a kid with earned income can have a Roth IRA, and the math of starting at 12 instead of 32 is absurd.

A custodial Roth IRA, opened by a parent at any major brokerage, lets a minor contribute up to their earned income or $7,500 (the 2026 limit), whichever is less. Contributions go in after tax, but remember the standard deduction: most working kids pay little or no federal income tax, so the money goes in essentially untaxed and then grows tax-free for life. Fidelity, Schwab, and Vanguard all offer these accounts with no minimums.

The compounding is the headline. A single $1,000 contribution at age 13, growing at 7% a year, is worth roughly $33,000 at 65 without another dollar added. A kid who puts in $1,000 each summer through high school is, plausibly, six figures ahead at retirement before their first real job starts.

The kid doesn't even have to give up their cash: many families match, with the parent contributing an amount equal to what the kid earned. The IRS only requires that contributions not exceed the child's actual earned income.

Opening the account takes fifteen minutes online. A parent opens a custodial Roth IRA in the child's name and manages it until the age of majority (18 or 21 depending on your state), when it becomes the kid's own.

The important homework is the earned-income question. Money from work counts: business profits, babysitting, mowing, a W-2 job at the pool. Allowance, birthday money, and investment gains do not. For a kid with a business, the net profit from your notebook ledger is the number, and that ledger is your documentation if anyone ever asks.

For 2026 earnings you have until April 2027 to contribute, but summer is the better moment, while earnings and enthusiasm are fresh.

Retirement is an abstraction to a 12-year-old, so don't oversell it. Frame it as money that multiplies while you grow up, and let a compound growth chart do the talking. Kids understand hockey sticks.

The quiet curriculum here has nothing to do with the IRS.

A kid who calculates net profit learns that results have costs attached. A kid who logs income learns that memory lies and records don't. A kid who splits money into buckets learns that a dollar can only do one job, which is the entire discipline of budgeting in one sentence. And a kid who watches a Roth projection learns the most valuable idea in personal finance: time in the market is a superpower that adults systematically waste.

There's also a dignity in it. Taking a kid's earnings seriously (tracking them, taxing them in theory, investing them for real) tells the kid their work is real work. That lands deeper than any lecture about responsibility.

Will they remember the 2026 contribution limit at 30? No. But the reflexes (know your numbers, write things down, start early) stick because they were learned with money the kid sweated for. Textbook money is forgettable. Shoebox money is not.

My kid made about $150 this summer. Do we need to do anything? Nothing required: under $400 net, no filing from that income alone. Still do the gross-versus-net math and the bucket split; the habits matter at every amount.

Does my kid need an LLC or business license for a summer stand? Almost never for casual kid businesses, and many states explicitly protect kid-run stands. If a teen business grows into steady year-round income, look into local rules together at that point.

Can I pay my kid for chores and count it as earned income for a Roth? Routine household chores are shaky ground. Legitimate work at genuine market rates (including real work for a family business, documented) is the safer standard. When in doubt, ask a tax professional.

What if my kid needs the Roth money before retirement? Contributions (not earnings) can be withdrawn any time without tax or penalty, and there are carve-outs for education and a first home. It's less locked up than most parents assume.

Is a savings account still worth it alongside all this? Yes. The named-goal savings bucket should live somewhere visible and safe, and a kid's first bank account teaches its own lessons. The Roth is for the long game, not the bike fund.

1. Custodial Roth IRA: Your guide to Roth IRAs for kids (Fidelity)
2. What is a Custodial Roth IRA and How Does It Work? (Charles Schwab)
3. Do minors have to file taxes? 2026 guide to teen tax withholding (Taxes for Expats)
4. Roth IRA income and contribution limits for 2026 (Vanguard)
5. Roth IRA for Kids: Age Rules, Taxes, and How to Set One Up (The Motley Fool)