One of the best gifts you can give your children is stability. A stable home life, stable friends and family and of course, a stable financial situation. That includes a stable financial future for them for when they become adults.
This means that it is never too early to start thinking about their finances and putting some money away for them regularly. You can play it safe and open a bank account or a trust for them, but you are likely going to get more bang for the buck by setting up an investment or a fund for them. This way the money can multiply and really give them a head start in life.
In this article, I will go over some ways you should be investing for the future of your children. If you want more details then you can check out a list of income generating assets that will give you extra money to help your child out at youngandtheinvested.com.
An IRA is not just good for your own retirement, but it can even fund your child’s. There is a custodial IRA that allows you to control an IRA for your child up until their 18th or 21st birthday depending on what state you live in.
This means that you can help your child become a millionaire by the time they reach retirement age. You just have to put in $2,400 per year in the account in your child’s name once they turn 16. If they can manage to keep their money in there without withdrawing it when they are able then it will literally be worth millions by the time they retire. Make sure the money they put in is earned by them, however. You can match contributions, but it has to be their money they earn from things like babysitting or summer jobs.
If they decide to withdraw the money then they will be penalized and taxed on it, however. This is a good incentive for them to leave the money alone until they do actually retire. The best part is that no more money has to be added to the account after their 21st birthday for them to end up with those millions as it will compound over the next 40 years.
The 529 plan is essentially a savings account that’s tax advantaged until they reach the age to use the funds for their studies. It’s essentially like a prepaid plan to send your child to an in-state college or transfer the funds to an out of state university.
The wonderful thing about this account is that it can be used for a wide variety of eligible education related expenses. For instance, those expensive textbooks are covered, as is a laptop they need for school or even their housing. As long as these expenses don’t exceed the cost of attendance. This is a figure that colleges will provide so you know not to go over it without needing to pay out of your own pocket.