Most of the time, when I have the opportunity to meet with clients who are in the same phase of life as Lauren and I (our 3 boys are now 7,5, and 3), one of the questions that we discuss is how to help them save for their kids’ future. Typically, saving for higher education is the first thing that comes to mind. And while I believe saving for future college education is important, I often remind them that helping them with other financial goals, such as buying a first car or home, setting them up for earlier financial independence, or supporting their entrepreneurial dreams, are also important goals to consider.
Here are some practical ways to help your child towards their future- beyond the classroom.
- Custodial Accounts (UTMA/UGMA)
Custodial accounts (Uniform Transfer to Minors Act or Uniform Gifts to Minors Act) allow you to invest in a wide variety of investments (stocks, bonds, mutual funds, and others) on behalf of your child. Once the child reaches a certain age (typically 18 or 21, but for those of us in Ohio, it can be age 25), the account becomes theirs. These accounts can be a good option, as the funds can be used for nearly any purpose, as long as it is used for the benefit of the child. One thing to be mindful of is the account does become the child’s asset once they reach the legal age mentioned earlier- meaning they have control of the account, for better or worse!
- Roth IRA for Kids
If your child has earned income from a job (this could be working at a fast-food restaurant or even things like babysitting or lawn care), they’re eligible to contribute to a Roth IRA. I have even had parents match what their child agrees to contribute as long as the total contributions do not exceed their earned income or the IRS contribution limit, currently set at $7,000/year in 2025. This can be a powerful, long-term investment for a child since the account grows tax-free, and the withdrawals can be tax-free in retirement as well. By starting young, it also harnesses the potential power of decades of compound interest and growth.
- Open a High Yield Savings Account
This can be a great place to help your children save for more short- or intermediate term goals. Helping them to understand the purpose of delayed gratification and having to save and work towards a goal (for my sons, this is typically setting aside money towards a new Lego set) will help teach and instill good financial habits that can serve them well later as adults. A high-yield savings account can also be a good tool to teach them about the benefits of building an emergency fund, to help them through a potentially difficult financial spot they may find themselves in at some point in the future.
Finally, as your kids get older, it is my belief that teaching them the basics of financial literacy and having healthy conversations about money and topics like budgeting, spending and investing, has the potential to reap significant dividends for them in the future. My encouragement would be to start small, think long-term and involve your child in conversations about money when the time is right. Their future self will thank you.
If you have any questions on how to help your kids on their financial journey, please feel free to reach out to our office, as we continue Moving Life Forward together.
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All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 1/2 or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on the state law, Roth IRA distributions may be subject to state taxes.
Featured Blog Image Source: iStock.com/Anastasiia Yanishevska