Updated: 5 days ago
Imagine your child, tween, or teen having a strong financial future because of the choices you made on their behalf today? Did you know that you can start investing for your child today using what you have? You don't have to have thousands to start. You can start with $5, $25, $100, $1000... whatever amount you choose!
Are you confused on what accounts to open or how to begin investing for your child or teen? Take a look at some of the best investment accounts for your child or teen below:
529 plans are tax-advantaged college savings plans that allow you to contribute money towards your child's educational expenses (tuition, room, & board) which can be used at traditional institutions, trade schools, and some secondary education schools. You might be thinking, what happens if my child doesn't go to college or a trade school? The good news is that you remain the owner on the account and can transfer funds to another beneficiary (family member) if your child ends up no longer needing the funds.
Pros: Can be used towards eligible educational expenses and reported as the parent's asset, not the child's.
Cons: Since the assets are counted as the parent's, it has a lower impact than UGMA/UTMA accounts. However, having a 529 plan still reduces a student's FAFSA aid eligibility up to 5.4%.
Bonus: Did you know that if your child no longer needs the funds when it's time for them to attend college, you can rollover unused 529 funds into their custodial Roth IRA without penalty? Read more about this here.
Below are a list of 529 accounts for your child by state:
UGMA (Uniform Gift To Minors Act) and UTMA (Uniform Transfers To Minors Act) are two types of custodial brokerage accounts that you can open on the behalf of your child. UGMA/UTMAs are held in the name of the custodian (parent or guardian) and are transferred to the child at the age of majority (18 or 21 depending on your state). Once your child reaches the age of majority, they have full control of the assets and can spend the funds however they please.
Pros: 1) Flexible spending and 2) contributions (not earnings) can be withdrawn at any time without penalty.
Cons: Because contributions are made with after-tax dollars, UGMA/UTMAs do not have the same tax benefits that 529 plans offer. The assets are also counted as the child's and can reduce their FAFSA aid eligibility up to 20%.
Custodial Roth IRA
Give your child a head start and help them begin putting money aside for their retirement by opening a custodial Roth Individual Retirement Account. However, your child must have verifiable earned income. You can open an account on behalf of your child at most major brokerages and retirement companies. We shared more about this here.
Pros: Does not reduce FAFSA aid eligibility unless funds are withdrawn (which would affect FAFSA eligibility the following year).
Cons: The child must have verifiable earned income to open an account.
Thankfully, any of the above accounts can set your child on the right track. So, let's give our children the future that they deserve! Teach your children and teens how to invest by enrolling them in KidVestors.
STOCK MARKET INVESTING FOR KIDS AND TEENS
View all of our financial education resources for kids and teens here.
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