One of the biggest regrets for most adults is not starting to save for retirement earlier. If this is your biggest regret or a regret that is high on your list of regrets, why not take the steps necessary to prevent this regret from being a generational regret. Have you ever wondered how to make your kid a millionaire? Why not give your children an advantage in the game of financial independence and wealth? Contribute to your child’s future early, often and consistently.
Savings
Many strive to save for their children, but few do. If you are able to put away $10 per month for your child, you are a head of the game. On the journey to financial independence, time is your child’s biggest asset. Imagine saving $10 per month, that is $120 per year. Over 18 years, that is $2160, not including interest. If you are in a better financial situation and is able to put away $100 instead of $10, that is $21,600 over 18 years, not including interest.
While interest earned on your savings account at an average bank is very low, high yield savings accounts can offer more than 20 times the interest rate of your average bank. A high yield savings account can turbo charge your child’s savings account.
How to make your kid a millionaire – contribute to your child’s savings account early and often.
Stock Market
While minor’s cannot invest in the stock market, you can do so for them. You may open a Guardian Account or a Custodial Account for your child.
Guardian Account
- You are able to retain ownership of the account
- Gains are taxed at your tax rate
Custodial Account:
- The child owns the account although you are in control of the account
- Gains are taxed at the child’s tax rate
- Note that once the child reaches 18 or 21, the assets in the account come under the child’s control
Roth IRA
You may also open a Roth IRA for your child. We are proponents of Roth IRAs because of the many advantages. For Roth IRAs for kids, the only barrier is income. Once the child has taxable income, an account can be opened. However, the same contribution limits applies for the account as any other Roth IRA.
How to make your kid a millionaire – invest early and often.
529 Plans
The third rung in your child’s wealth building chest is a 529 plan. Let’s face it, college is expensive and seems to be getting more expensive.
- Average public university cost per year: $10,116
- Public university cost to graduation (average): 4 x $10,116 = $40,464
- Average private university cost per year: $36,801
- Average private university cost to graduation: 4 x $36,801 = $147, 204
By contributing to a 529 plan, you are able to offset some or all costs associated with a college education. In many States, two 529 plans are available, an investment plan or a prepaid plan.
- The investment plan allows you to contribute by buying and selling shares offered by the State or the State’s agent (similar to investing in the stock market).
- The prepaid plan is based on the cost of attending a college. Here, you are prepaying the cost of attendance.
While 529 plans are not deductible on your federal tax filings, many States allow you to deduct a set portion of your 529 contribution from your State tax filings. As such, contributing to your child’s future and also receiving a State benefit. A win-win of sorts.
How to make your kid a millionaire – Reduce their college cost burden.
Conclusion
On your journey to financial independence, it is only natural to wonder what can be done to give your child an advantage on their journey. Time is your child’s greatest asset. As such, contributing to your child’s future early, often and consistently will greatly increase their chances of financial success. Saving, investing and funding a 529 plan are instrumental financial tools that you can use to jump start your child’s journey to financial independence. Make your kid rich.
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