Investing in your children allows you to set them up for financial success. And this is one of the greatest gifts you can give them.
While there are many options out there, it can be hard to know where to even begin. Here are 5 ways you can start investing in your children today.
1. Prepaid Tuition Plans
With rapidly rising tuition costs, some states have given parents the option to lock in future college tuition costs at present-day rates. Florida is one of only nine states that offer these prepaid tuition plans. Even if your child isn’t college-bound for many years, you can use this plan to pay the current tuition of any eligible college, making the Florida Prepaid plan a powerful investment tool.
Unlike 529 college savings plans which don’t guarantee that the funds will fully cover tuition, the Florida Prepaid plan can give you the peace of mind that your child’s future tuition costs are taken care of. Lastly, prepaid plans are designed to be used at in-state colleges, but if your child ends up attending an out-of-state college, the funds can still be applied out of state.
2. Uniform Gifts To Minors Act (UGMA) Accounts
A UGMA account is an easy way to transfer money to your children without going through the extensive process involved in setting up a trust fund. UGMA accounts also offer a way to transfer assets to your children without paying gift tax. One parent can contribute $15,000 (for a combined $30,000 for a married couple) without paying gift tax.
UGMA accounts are brokerage accounts that can be invested in a range of financial assets like stocks, bonds, and cash. This account is managed by an adult until the child comes of age. Family and friends can contribute to the plan, and all funds permanently transfer to the child once they reach the age of majority, which is 18 in Florida.
UGMA accounts offer a lot of flexibility on what the funds can be used for. While college savings plans restrict account usage to tuition or other education-related expenses, funds in UGMA accounts can be used for any future expenses.
3. Custodial IRA
If your child has an income, you can help them open up an individual retirement account (IRA). A custodial IRA works just like a traditional or Roth IRA, but it must be opened by a parent if the child is a minor. This makes the custodial IRA a great tool to give your child a running start in saving for retirement.
With the custodial IRA, parents can hold the account for their minor children and manage the assets until the child reaches 18. After the child comes of age, all the contributions made to the custodial IRA must transfer to the child. You can also contribute to your child’s IRA as long as the total contributions do not exceed the amount your child earned that year. Another advantage of the custodial IRA is that you can make penalty-free withdrawals to cover qualified higher-education expenses.
4. Certificate Of Deposit (CD) Ladder
CD ladders are another option to help young investors save for future expenses. CDs typically have a lower interest rate compared to other investments. But their biggest advantage is that they offer fixed interest rates and fixed terms. This makes planning for the future very simple since you know exactly how much you will have once the CD reaches maturity.
However, to get the highest interest rates with CDs, you need to lock in your money for longer periods of time. That’s where the ladder comes in. You create a CD ladder by using multiple CDs at different maturity dates. This way, not all your funds are locked into one CD. When one CD matures, you can roll the money over into a new CD or access the funds as you wish.
The biggest drawback of CDs is that they do not offer very competitive interest rates. But, since the rates are fixed, you can easily calculate the amount you will have at the end of the CD’s maturity date. This makes them a safe and reliable way to save for a future cost.
5. Teach Your Children About Investing
Lastly, it’s never too early to teach your children the value of investing. Financial literacy is essential to build good money habits for the long term. By learning about saving and investing from a young age, children will be better prepared to make sound financial decisions. You can start nurturing their interest by having simple conversations around what investing is about, using age-appropriate vocabulary.
Additionally, when opening an investment account for your child, open it with them. Make them a part of the process so they can begin to form an understanding of what it means to invest in themselves.
Let Us Help You Invest In Your Children’s Future
The good news is, you have many options to give your children a head start on their path to financial success. With decades of compound growth available to them, your children have time on their side. But, with so many ways to invest in your children’s future, it can be challenging to know where to start. When you partner with an advisor, you have someone who understands your unique financial situation and can help you make a decision that aligns with your needs.
That is why I am here, to answer any of your questions and discuss your concerns and goals during a complimentary, no-strings-attached meeting. To book your complimentary meeting, call us at 352-207-8014 or schedule directly here.
Chris Reed is a financial advisor and the founder of Match Point Financial. Since 2002, he has been helping people make informed choices with their money and pursue their financial goals and objectives. He started his career with MetLife and has continued seeking to provide his clients with the best possible service through A.G. Edwards, UBS, and finally through partnering with Cetera Advisors LLC and forming his own independent firm in 2010. Learn more about Chris by connecting with him on LinkedIn or register for his recent webinar Are Your Old 401(k)s Collecting Dust and Losing You Money? here.
Financial Advisor: Securities and advisory services offered through Cetera Advisors LLC, member FINRA/ SIPC, a broker/dealer and a Registered Investment Advisor. Cetera is under separate ownership from any other named entity.