Every parent wants the best for their child — and parents can guarantee a secure and financially stable future for their children by investing now. Putting a bit of money aside for your kids is a fantastic way to prepare them for their future and learning more about ‘real-life’ skills such as managing finances.
When people consider investing for their kids, most revolve around college savings. Though it’s a crucial component, there are many additional investments you can make. Similar to how franchising opportunities for sandwich bars or coffee shops promise significant returns, investing in these options can go a long way.
Here are some of the best investment options to consider to secure your children’s future:
529 College Savings Account
The most common and best investment you can make to ensure your child’s future is a 529 college savings account. Although this account aims to save for a kid’s college funds, the flexibility and tax treatment make them appealing. You can contribute a lot to this account, around $30,000 every year, based on the current gift tax exemptions. You can also do a ‘super-funding’ that accelerates your contributions of several years into one. Parents may also use this account to fund private schools during their children’s K-12 phase.
Moreover, if your child doesn’t end up using the balance you saved up for college, you can change the beneficiary of that particular 529 accounts to another kid of yours or yourself.
Although there are restrictions on participating in conventional IRAs or Roth IRAs, if you can pull it off for your children, it can ensure a financially secure future for them. These are geared towards saving for retirement and have different tax benefits depending on the IRA you take. There’s no age restriction to opening an IRA account — meaning you can save for your child’s retirement early on.
A great investing route for your children is a CD ladder. It’s a straightforward investment option that frees you from dealing with the market or IRS regulations. When you implement a CD ladder, you buy several deposit certificates with different durations and interest rates, resulting in several CD ladders maturing regularly. It can help you generate additional funds through interest, allowing you to save more for your kids.
Although it isn’t necessarily an ‘investment,’ making trusts is a great way to ensure your assets get into good hands, and in this case, your children. It’s a legal agreement where you designate your valuables, like money, structures, properties, or lands, into a trust and assign a ‘trustee’ to manage those assets on behalf of your children or ‘beneficiaries.’
There are different kinds of trusts. For instance, a bare trust gives beneficiaries the right to your assets when they reach 18 or a discretionary trust that provides power to the ‘trustee’ to when and how to divide assets — ideal if you have multiple children.
Junior Self-Invested Personal Pension
Although your kid’s retirement may seem a ways away, you can never be too prepared. So, consider opening a Junior Self-Invested Personal Pension (SIPP) for your children. Like its adult counterpart, a junior SIPP is eligible for up to 20% of tax relief. However, keep in mind that tax benefits and regulations depend on individual circumstances and will change between now and when your children reach retirement age.
When it comes to securing your children’s future, regularly placing aside even a small amount can significantly add up — and investing in any of the options mentioned can give you a good kickstart of helping your kids over time.