Essential Financial Steps to Take Immediately After Your Child is Born

When your child is born, I would do the following three things immediately. I'm Tyler, a former financial advisor and portfolio manager, and now I create financial content for free to help you make informed decisions without the cost.

1. Open a Custodial Roth IRA

I would open a custodial Roth IRA in their name through platforms like E-Trade, Fidelity, Schwab, or Vanguard. This account can be set up when they are babies, as it focuses on earnings rather than age.

2. Fund the Account with Earned Income

Next, I would fund that account with any of their earned income. Children can earn money as W-2 employees in your business or as self-employed individuals, perhaps through dog walking or babysitting. By making a one-time contribution of $7,000 to their account when they're 10 years old, they could potentially become millionaires by the time they're 59 and a half.

3. Educate About Compound Earnings

Finally, I would remind them that the decades of compound earnings are 100% penalty and tax-free if withdrawn after the age of 59 and a half. If they need access to the money earlier, they can withdraw their contributions at any time, penalty and tax-free, since the account is funded with post-tax dollars. Additionally, they can even take up to $10,000 of earnings penalty-free if used for education or as a first-time home purchase.

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