Helping your kids get off on the right foot financially will help lay the groundwork for years to come by the time they’re ready to leave the nest. Aside from teaching them budgeting skills, there are other steps you can take, including opening certain types of financial accounts and teaching them about investing.
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Consider some of these common ways to help your kids build wealth.
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Invest Towards Their Education
A 529 savings account is a common way for parents and guardians to save towards their child’s college education. These types of state or educational institution-sponsored accounts offer tax advantages for those contributing to them.
Depending on the state you live in, your contribution could be tax deductible or eligible for state tax credits. Plus contributions grow tax free, and so do withdrawals as long as you use them for qualifying educational expenses.
You can generally open a 529 account at any time, and name your child as the beneficiary. If you start early, even smaller contributions can add up over time.
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Teach Investing Skills
Investing know-how will carry your kids far and help them build wealth long after they graduate college or start their own career. You can start by talking to them about what investing is and why it’s an important part of wealth building.
If you have the financial means to do so, consider helping them open a brokerage account and allow them to make contributions. Relatives can also help contribute in lieu of a birthday or holiday present if your child chooses.
Help Them Open a Roth IRA
Yes, it can be possible to open a Roth IRA in your kid’s name.
To qualify, your child will need earned income to be able to contribute. Older kids who have part-time jobs may qualify. Or, many business owners hire their kids and pay them a wage. Even if they’re not able to max out the annual contribution limit, investing early and letting the cash compound over time could result in millions.
Before opening an account, be sure to check IRS regulations or see the help of a qualified tax professional.
Create a Trust
A trust isn’t only for the wealthy. Anyone can create one.
A trust is a type of legal document where your assets are held by a third party on behalf of a beneficiary. In this case, your children.
The intent of a trust is so that you can pass on your wealth after you pass or during your lifetime. For example, an irrevocable trust is one you can create while you’re still alive and meant to give wealth to your children during certain times and on certain occasions. A revocable trust is for when you pass, and your assets are held by someone entrusted with it to pass wealth onto the beneficiary.
Other types of trusts you can create include special needs trusts so that you can help pay for future needs. Whatever you choose, you’ll want to see the help of an experienced attorney to help you draft these legal documents.
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This article originally appeared on GOBankingRates.com: 4 Ways To Build Wealth for Your Kids at Every Age
