Inside: Are you thinking about Investing in Your Child’s Future? Keep reading for benefits and recommended investment plans if you’re wondering about the best long-term investment for child.
Your child will benefit significantly from your wise and altruistic decision to invest in your child’s future. You may wish to save money for college, a car, or another one of life’s many milestones. Either way, money is probably one of your many worries and obligations as a new parent.
But what are the exact benefits of Investing for your child? And how to do it right? This blog post is here with answers from financial experts. Read on!
4 Major Benefits of Investing in Your Child’s Future
Saving money has obvious advantages. But beginning a fund for your child’s future now provides hidden rewards that you might not have thought about. Check them out here:
Their Financial Goals Become Accessible to Them
By starting to save money now, you will give your child a higher chance of achieving their financial objectives. For instance, saving for their education will give them a way to finish college debt-free.
Your Stress Gets Minimized
You may rest easy knowing that they will be taken care of when they are adults. You won’t have to spend money supporting kids later in life if you start saving for them now.
You Can Save Tax-free
Pre-taxed income can be used to fund investments in health savings accounts, college savings accounts, and other types of accounts. Additionally, you can add funds to them with favorable compound interest rates to expand immensely in the future.
Your Prepare Them for Life
By investing in your child’s future, you give them financial freedom and instill in them the virtue of saving money from a young age. This will undoubtedly prepare them for a prosperous and sound financial future.
4 Most Trusted & Profitable Ways to Invest in Your Child’s Future
Let’s look at the 4 most recommended investment choices that you can employ to give your kids a head start in the world of money.
529 College Savings Plan
A college savings account called a 529 is a type of investment vehicle. They provide a variety of tax benefits, including tax-deferred growth and tax-free withdrawals when the funds are used for eligible educational costs. All 50 states offer 529 plans, which provide you the option to set aside money for your child’s education by designating him or her as a beneficiary.
Most 529 college savings plans can be transferred to other beneficiaries and children. So you can anytime transfer the funds to another child to assist pay for their education. You can also start a 529 plan in another state. This gives you some early choices regarding the college your child should attend.
Coverdell Education Savings Account (ESA)
A Coverdell education savings account (ESA) is a tax-deferred savings and trust account. With an ESA, you and extended family members are able to make contributions toward higher education.
But the annual cap is only set at $2,000. This means that the annual maximum contribution you can make to the fund is $2,000.00. However, you can open many accounts in one beneficiary’s name using an ESA, and any growth on these accounts is tax-deferred.
The funds must be used for eligible educational costs. While your child is in kindergarten through grade 12 and post-secondary schools, you can still utilize it for any expense. You won’t be penalized and the contributions are tax-free, provided they are less than all qualified expenses including tuition, books, supplies, and tutoring.
Roth IRA for Child
Roth IRAs are not normally used to save for your child’s future, as the money isn’t intended to be withdrawn until they reach retirement age. But you will be doing them a favor by getting them started now for retirement.
Until your child reaches the required age, which for a Roth IRA is 59 and a half years old, a parent or grandparent is in charge of managing the Roth IRA.
The maximum annual contribution you can make to a Roth IRA for your baby is $6,000 which is already taxed before contributing. But you can only donate as much as your child earns if they do a part-time job.
The money in a Roth IRA can be withdrawn whenever you choose with only a small penalty—typically 10%—and can be used for anything.
When you invest in mutual funds through a 529 plan or IRA, you are vulnerable to market swings. A certificate of deposit (CD) could be the solution if you wish to diversify your investments with something safer. You can also think about using a CD ladder.
A CD ladder allows you to buy a number of certificates of deposit with various maturities and interest rates. You can transfer a mature CD into a fresh one. The process can then be repeated indefinitely if you want to keep saving. A CD ladder is not going to yield absurdly high returns, but it is a safe alternative for long-term savings.
Everyone wants to give their kids the best chance for success. You can accomplish this with these 4 investment options. One simple thing to remember is that your financial future is also important. Make sure you have enough money saved for your retirement before investing in your child.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning. Over the last 10 years, he has turned his focus to self-directed accounts and alternative investments.
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