Investing for Your Children’s Future

A family saving money in piggy bank- Greenberg Financial Group
August 29, 2020

Most parents invest in their child’s financial future, whether they realize it consciously or not. This may mean anything from starting a college fund to spending a little more on a better health insurance plan. No matter how old your child is though, it helps to have a basic strategy in mind. We’ll look at what it means to really think it through and how you can work the plans into your everyday habits.

 

Start with You

You can’t start investing in your children’s finances if you haven’t invested in yourself. If saving for your kid’s future means destroying your or the larger family’s wealth, it’s not worth the risk. There are plenty of one-off stories of a parent going into serious financial debt only to be rewarded later on, but these exceptions don’t justify such a dangerous maneuver.

 

Think Ahead

There’s nothing to say what your child will and won’t do in the future. Maybe they’ll want to attend a prestigious 4-year college, maybe they’ll want to enter a trade school, or maybe they’ll want to start a business at age 18. You can certainly earmark your funds, but you should also consider how life doesn’t always go exactly as you planned.

 

Education Basics

First-time investors are usually encouraged to open an Educational Savings Account (ESA), largely because it’s easy to get started and the interest rates are reasonable. (Please note that parents making more than $190,000 combined are not eligible for this option).

 

Retirement Basics

If you’re planning to invest in your child’s retirement, consider a Custodial IRA. If you choose the Roth option, you can manage your child’s account (tax-free!) until they become an adult. It only takes a few dollars each month to start snowballing into a real financial cushion.

If you put in $100 a month for five years from age 13 to 18 in a Roth IRA and your child doesn’t touch it until they they turn 65, they would have more than $817,000 in the account. That’s tax-free savings that they can use to live on for many years of their retirement. Plus, it allows your child to see the rates of return on interest, which can inspire them to save even more.

 

Liquid Lunch

You can think of retirement as a big steak dinner by the time your child reaches their Golden Years. Of course, if they need anything before that substantial meal, they’re going to need a more flexible account. In this case, you can consider investing in a mutual fund, stock market, or money market.

There’s also the Uniform Gift to Minors Act account or the Uniform Transfers to Minors Act account. These options let you open up an account and manage it for your child, but the funds can be used for anything. They’re taxed at the child’s tax bracket as opposed to yours, meaning they’ll pay less in income taxes.

 

Tucson Wealth Management

It’s not easy to manage your child’s investment future when there are so many variables, but there are ways to plan ahead. If you’re interested in creating customized strategies for your kids, call Greenberg Financial Group today for more tips.

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