Best 3 ways to Invest for your children!
We can all agree that we want the absolute best and highest quality of life for our children. Today, it is common to hear that most of the millennial generation struggle to pay for the cost of college, are postponing home buying, and having less children than previous generations.
One factor that can contribute to all three of these problems is financial literacy. That is not to say that money is everything when raising children, but wouldn’t it be nice to prevent or reduce the stress of these impediments for the next generation of kids? While I cannot guarantee simply saving extra money will create a successful adulthood for every child, here are three basic strategies to help create a foundation for your child as they enter adulthood.
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1. 529 College Savings Plan– This allows you to invest now for your child’s future college expenses. He/she can pull the money from the account TAX FREE, including the gains as long as the money is used for school expenses. Some popular accounts are the Illinois 529 plan, Louisiana START Saving Program, Michigan Education Savings Program, and many more. Within most 529 plan accounts, you will find common investment options such as ETF’s (Exchange-Traded Funds, Mutual Funds, Target date funds, etc… You can start investing the moment your child is born or earlier. Start researching today to find out which account is best for you and your family!
“If you invest as little as $5/day for your child from age 1 until age 20, they could have approximately $100,000 when they enter adulthood”
2. Custodial Brokerage Account (UGMA/UTMA Account)– This option allows you to open a Taxable brokerage account for your kids who are under the age of 18. Depending on the state of residence, when they reach the ages of 18 or 21, they will have complete control of the account. What’s awesome about this account is it teaches your kids the concept of investing, discipline, and how time plays a huge role. If you invest as little as $5/day for your child from age 1 until age 20, they could have approximately $100,000 when they enter adulthood (assuming a conservative 7% return on investment). The only downside for this account is it will be taxed at your normal tax rate, so visit a tax professional for additional information.
3. IRA (Individual Retirement Account)– This is an option only if your child has earned income from employment. Usually, teens start working at age 16, which is an excellent time to introduce them to an IRA account. Some articles even mention parents that are business-owners, employ there child earlier than age 16, and open the IRA account. Imagine planning your retirement at 16, and by age 46, you will have the same amount of time invested as most people who start investing at 36 to retire at 66. This is like putting your child’s Retirement account on steroids.
You don’t have to implement all three of these strategies in your life at the same time. Neither, do you have to pick all three. These are just a few common ways to create a solid financial foundation for your children early on so that adulthood isn’t such a huge shock. I have met with many young adults who are struggling due student loans, housing cost, and just general life hiccups. This negatively impacts their ability to save for retirement, buy a home, and build a family.
Whether it’s $1000 a month, or $1 a day, I am certain your child will appreciate any contribution you give to invest for their adulthood life. Remember, if you have any questions or would like to receive coaching on any topics discussed above, contact me anytime! I am here to help everyone, whether it’s credit building, investing, or just normal everyday questions. Thank you for reading and continue to look out for future blogs!
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