Financial Advisor Shares 2 Simple Money Moves Parents Can Make To Give Their Kids A Million-Dollar Nest Egg
Doing this could pay for your child's college or allow them to retire early.
Rawpixel.com / Shutterstock All parents can agree that they want what’s best for their children. Thinking about what’s best often includes considerations about finances. Some parents choose to let their children figure out money for themselves, while others want to give them a leg up.
For those who want to set their kids up for financial success, there are options to help make that easier.
A financial advisor said there are two accounts parents can open now to help their kids later.
A former financial advisor named Tyler offers information on TikTok on how to keep your financial standing strong.
He advised parents, “Here are the only two accounts that I would ever consider setting up for your children,” he said. “One of these accounts could actually make them millionaires, and the other account could save you from being broke.”
The first account Tyler mentioned was the Custodial Roth IRA.
“This is an incredible opportunity for your children,” he said.
Tyler explained, “Each year, you can contribute up to the annual limit of post-tax dollars and invest it in a wide range of investment options.”
“The only catch,” he said, “is that this money has to be legitimate earned income by your child.”
Tyler suggested paying your children to do different simple chores for the money to be considered their earned income.
“The benefit?” he asked. “You put 7,000 bucks in that account when they’re young and invest it in low-cost index funds, and they could legitimately have a million bucks waiting for them by the time they’re 60.”
This is a great option to ensure your child has some money to start their life with, or to retire with.
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Charles Schwab confirmed what Tyler said: “A Custodial IRA is an account that a custodian (typically a parent) holds for a minor with earned income.”
They continued, “Once the Custodial IRA is open, all assets are managed by the custodian until the child reaches age 18 (or 25 in some states). All funds in the account belong to the child, allowing them to start saving money early.”
Charles Schwab said that the money in a Custodial Roth IRA can be used for things like college or becoming a homeowner.
The second account Tyler mentioned was the 529 college savings plan.
Unlike the Custodial Roth IRA, the 529 plan is only for college expenses.
“Each year, you can contribute whatever you want, as with the 529, there is only an aggregate contribution limit that is usually just over $500,000, and it varies by state,” he shared.
“This account offers tax-deferred growth, tax-free spending so long as it is on qualified education expenses: tuition, room, board, books,” Tyler said. “And the best part of this account is that if your child decides not to go to college or does not use all of the funds, up to $35,000 of that money can be rolled over to a Roth IRA.”
According to Fidelity, “529 funds can be used for a wide range of education expenses, including college expenses at postsecondary schools nationwide, tuition for K-12 schools, certain apprenticeship costs, and student loan repayments.”
Fidelity also confirmed that no taxes are due on the money while it’s in the account, and there are typically no account fees.
These are both excellent options for investing in your child’s future.
If you want to give your children a hand with financial matters and put them on the right path, both the Custodial Roth IRA and the 529 college savings plan provide great opportunities to save money.
Unfortunately, with such an unstable economy, many parents want to help their children but can’t. Even one of these accounts would be too much for them to take on.
It’s important to remember that inaction in this area does not equal indifference. However, there's also no requirement that you have to contribute more than you can. Every little bit counts, and for most kids just starting out that's a significant leg up.
Mary-Faith Martinez is a writer for YourTango who covers entertainment, news, and human interest topics.