Mon Jun 10 2024, by Tyler Gardner

Two Essential Financial Accounts Every Parent Should Consider for Their Children

Here are the only two accounts that I would ever consider setting up for your children. One of these accounts could actually make them millionaires and the other account could save you from being broke.

I'm Tyler. I'm a former financial advisor and portfolio manager, and now I make financial content for free so that you don't have to pay for it.

1. The Custodial Roth IRA

This is an incredible opportunity for your children. Each year, you can contribute up to the annual limit of post-tax dollars and invest it in a wide range of investment options. The only catch is that this money has to be legitimate earned income by your child—like mowing the lawn, doing some chores around the house, or sorting your papers for your small business.

The benefit? You put $7,000 in that account when they're young and invest it in low-cost index funds, and they could legitimately have a million bucks waiting for them by the time they're 60—all for folding some clothes and doing some yard work. And remember, in any Roth, they or you can take back those contributions at any time, penalty and tax-free.

2. The 529 Education Savings Plan

With some colleges charging over $90,000 a year right now, we could all use every single tax advantage we can get. Each year, you can contribute whatever you want. As with the 529, there is only an aggregate contribution limit that is usually just over $500,000, and it varies by state.

This account offers tax-deferred growth and tax-free spending as long as it is on qualified educational expenses such as tuition, room, board, and books. The best part of this account is that if your child decides not to go to college or does not use all of the funds, up to $35,000 of that money can be rolled over to a Roth IRA.

The only big drawback of the 529 to me is that there are very limited investment options, and they are controlled by the state.

If any of this is helpful, like and follow, and I will keep trying to get you one step closer to where you need to be.

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