As a parent, you want to do everything you can to set your children up for success. As a result, you may be asking yourself: How can I invest in my child’s future?
Knowing the power of compound interest, some folks may want to know how to kick-start their children’s retirement savings. Others just want to help their kids get a college diploma without taking on any debt.
Whether your child is still crawling around the living room floor or getting ready to graduate from high school, there are plenty of ways you can invest in their future. Here are our top 4 tips to get started.
Understand Your Cash Flow
One of the most fundamental aspects of saving for your child’s future is to have a deep understanding of your own cash flow. In other words, it’s crucial to understand how money comes in and out of your life—that way, you can make informed decisions about managing your finances and ultimately allocating money towards your child.
Tip: Make sure you’re taking care of yourself before you start investing for your children or grand-children. You need to be prepared financially so you don’t end up depending on your children during your retirement years!
Open a Certificate of Deposit
Another way to give your kiddos a leg up financially is to open a certificate of deposit for your child. CDs are like savings accounts but pay more interest in exchange for a promise that you won’t touch the money for a set period of time.
At RMLEFCU, we have a Super Saver CD you can start for your child with a minimum of only $25. You can earn 1% for the first year up to a maximum balance of 10K! Our favorite way to get the most out of our Super Saver CD is to insert a direct deposit every month or quarter. This way, you can make sure the account keeps growing and never goes dormant.
Set Up a Roth IRA in Your Child’s Name
When thinking of the best ways to save money for your child’s future, a Roth IRA rarely makes the list as a top retirement savings vehicle for kids, but it absolutely should!
Roth IRAs for kids provide an ideal investment account for their situation, because children have decades for their contributions to realize tax free growth.
And what’s more—these accounts offer considerable flexibility as well: The Roth IRA owner can withdraw contributions made into a Roth IRA tax- and penalty-free at any time.
Leverage a 529 College Savings Plan or Prepaid Tuition Plan
College already costs a small fortune and, at the rate we’re going, it’s likely going to cost even more by the time your child applies. Allow your money to make money through the compound interest of a 529 college savings plan.
This plan allows savers to stash away money specifically to fund a college education and offers tax-deferred growth and tax-free distributions for qualified education expenses. As 529s are state-sponsored savings plans, some states will offer their own income tax deduction, or tax credit, in the year you make a 529 contribution, up to certain limits.
There are two types of 529 plans:
A General College Savings Plan: Allows parents to put money aside into an account that can be used at any school, including private K-12 institutions. Some states provide a tax deduction for contributions to their state’s 529 plan, and withdrawals used for qualified education expenses are exempt from federal income tax.
A Prepaid Tuition Plan: Locks in current tuition rates for public institutions. While the ability to lock in tuition rates is a valuable benefit, the college savings option often offers more flexibility.
The Biggest Takeaway
Saving money for a child is a noble goal, whether that includes saving early so you can easily cover medical bills or opening up a 529 savings account for a child that’s already here. Either way, your best move is getting started right away.
Stop by one of our branches or give us a call at 303.458.6660–we can work together to get ahead of the game when it comes to setting your child up for financial success.