I actually have a kid myself, who just very recently turned five. I just sat down and tried to explain it to her the best I could and she seemed to understand. She actually gender's me as male and still calls me mom. I don't mind, since I feel it is up to her what she likes to call me

She was actually really worried and scared I was not her mom anymore, so when I explained to her that no matter what I was still the same and I was always her mom, she just smiled and said 'Alright, so you are my prince now.'
I also actually asked the doctor who is a head of the trans team at the hospital how would be the best way to go about it and such, and he just told me that this age was actually the best time since at that age everything is always new and constantly changing. Their world is filled with lots of imaginary games and such.
Actually, from the day she was born I never gendered anything, from what she has picked up is mostly from her kindergarten. She will wear a pretty pink dress, run around playing soccer or playing with toy cars xD
You shouldn't worry too much though, this has no negative affect on kids that age. I know a trans guy with three kids of his own and the youngest when he started was about four if I remember correctly

I think the best way would actually just to sit down and talk to them, even though they are young, on the long run they will begin to understand