Has anyone had success starting a ROTH IRA for their child in a custodial account?
Yes. All three of my young adult offspring have Roth IRAs. (BTW, it's "Roth", named after a US Senator. Not "ROTH" - it's not an acronym.)
Have you directly contributed to their fund by paying them as an employee?
Generally speaking, no. They earned money from other people doing the usual teenager jobs - babysitting, mowing lawns, tutoring, etc.
I've been doing research online but an exact process as well as how to pay them/prove they are receiving an income has been difficult.
Some say you can pay them a fair hourly wage for things like helping to garden or taking photos for your website.
Yes. It's a free country, you can hire people for your business and to do chores around your house. You can't discriminate based on age, race, sex, etc. You can't hire people who are not authorized to work in the US. And you can't pay your offspring a "puff wage" in order to generate earned income for a Roth IRA contribution. But if you'd hire someone else's kid for $10 a day to babysit your cat, then you can certainly hire your own kid and pay them the same amount.
But, what tax forms would you need to file and how can you go about doing this process correctly?
If they are someone's employee and get paid, that employer (whether you or someone else) is required to issue them a W-2 for amounts paid. If they are working as a contractor and get paid more than $600, then the person who hired them is obligated to issue them a 1099 for amounts paid. W-2s and 1099s are also supposed to be sent to the IRS.
For situations where my kids did not receive W-2s or 1099s (which is common in teenager job situations), I had them keep an earnings record showing dates, amounts, and description of services. I believe this can serve as records to substantiate a Roth IRA contribution, although others might disagree with me.
They do need earned income to make an IRA contribution. Christmas checks from Aunt Sally don't count.
Depending on the amounts paid and the circumstances of their work situation and whether or not they are a dependent (yours probably are if you're asking this question), they may or may not be required to file federal or state income tax returns and pay income and/or self-employment taxes. Under certain amounts and certain situations, they may not have to file and they may not owe any taxes. I don't recall offhand all the rules and limits, but you can probably find them at irs.gov.
If you want to establish proof of income, one way would be to go ahead and file an informational return with the IRS reflecting their earnings in the appropriate first 8 lines or so of the 1040 (and Schedules C and SE as appropriate if they had 1099 income, or on line 21 if it qualifies as hobby income). I didn't bother with this step; I just filed their earnings records with their tax records for that year.
