You’ve already taken the necessary steps to plan for your own future needs, and now you want to make sure your kids or grandkids start off on firm financial footing.
Here’s everything you need to know about setting your children up for financial success.
First Things First: A Financial Education
Here we’ll discuss a few of the choices you have when investing in your child’s future, and we believe that one of the best ways to get started is to have open, regular conversations with your children about money and finances.
A financial education is a critical step in helping your kids reach their financial goals, and that learning can start as early as preschool age. Learning to respect money, plan a budget, save for big-ticket purchases, and even invest for the unexpected are all skills that can be taught early on.
Of course, while starting early may be the ideal, it’s also never too late to teach your children the value of saving and investing. The teen years are a great time to instill those values.
Saving for College
Student loan debt is a real problem, and tuition and other fees keep escalating, so it’s smart to plan ahead as early as possible. We always recommend saving as much as you possibly can, especially since it’s impossible to know exactly where your child will end up going to college.
When it comes to college fund plans, there are a few to choose from, and each has different tax benefits and implications. From 529 Plans to Coverdell ESAs and UTMAs/UGMAs, you have options. A financial advisor can help you weigh the ins and outs of each and help you determine the fund that is most consistent with your overarching financial plan.
Investing In Your Child’s Retirement
Several types of custodial accounts exist and can be a great jump on building savings for your kids. As the term “custodial” implies, you’ll set up an account (such as investments in stocks or mutual funds) on their behalf and act as the custodian until they are 18. The child is the legal holder of the assets, even when they’re still a minor.
If you have a teen who is making some income at a part-time job, they can begin saving for their future using a Custodial IRA. You can select a traditional or a Roth. With a Roth, the money will grow tax-free, and as they watch their earnings grow, this can be a great lesson for kids in the power of investing.
Note that they can only contribute what they make in a given year — no more. You are able to contribute, as well, just as long as you don’t contribute more than your child makes (also subject to maximum limits).
Seek the Assistance of a Financial Advisor
Just because you’re investing on behalf of a minor doesn’t mean it’s childsplay. A trusted financial professional is ready to provide you the resources and information you need to make sure you’re selecting the right investments for your child and balancing those priorities appropriately with your own financial plan.
Ready to get started investing in your child’s future? Contact Ironwood Wealth Management today.