All parents can agree that they want what is best for their children. Thinking about what is best often includes considerations of finances. Some parents choose to let their children figure out money for themselves, while others want to give them a step up.
For those who want to prepare their children for financial success, there are options to make it easier.
A financial advisor said there are two accounts parents can open now to help their children later.
A former financial advisor named Tyler shares TikTok insights on how to maintain financial stability.
He advised parents: “Here are the only two accounts I would ever consider setting up for your kids,” he said. “One of those accounts could actually make them millionaires, and the other account could save you from getting hacked.”
The first account Tyler mentioned was the Custodial Roth IRA.
“It’s an incredible opportunity for your kids,” he said.
Tyler explained, “Each year, you can contribute up to the annual after-tax dollar limit and invest in a wide range of investment options.”
“The only catch,” he said, “is that this money has to be legitimate income earned by your child.”
Tyler suggested paying your kids to do various simple chores so the money counts as their earned income.
“The benefit?” he asked. “You put $7,000 in that account when they’re young and invest it in low-cost index funds, and they could legitimately have a million dollars waiting for them by the time they’re 60.”
This is a great option to make sure your child has some money to start life with or retire with.
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Charles Schwab confirmed what Tyler said: “A Custodial IRA is an account that a custodian (usually a parent) holds for a minor with earned income.”
They continued, “Once the Custodial IRA is opened, all assets are managed by the custodian until the child turns 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 the money in a Roth Custodial 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.
“Every year, you can contribute whatever you want, like with 529s, there’s just an aggregate contribution limit that’s usually a little over $500,000 and it varies by state,” he said.
“This account offers tax-deferred growth, tax-free spending as long as it’s for qualified education expenses: tuition, room, board, books,” Tyler said. “And the best part about this account is that if your child decides not to go to college or doesn’t use all the funds, up to $35,000 of that money can be rolled over into a Roth IRA.”
According to Fidelity, “529 funds can be used for a wide range of education expenses, including college expenses at post-secondary schools across the country, tuition for K-12 schools, certain apprenticeship costs and student loan repayment.”
Fidelity also confirmed that no fees are due on the money while it is in the account, and there are typically no account fees.
These are both great options to invest in your child’s future.
If you want to give your kids a helping hand with financial problems and get them on the right track, both the Custodial Roth IRA and the 529 college savings plan offer great opportunities to save money.
Unfortunately, with such an unstable economy, many parents want to help their children, but cannot. Even one of these accounts would be too much for them.
It is important to remember that inaction in this area does not equate to indifference. However, there is no requirement that you must contribute more than you can. Every little bit counts, and for most kids just starting out, this is an important step.
Mary-Faith Martinez is a writer for YourTango covering entertainment, news and human interest topics.
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