Many parents and grandparents are asking questions about how to invest for their child so their kids can have a better head start in life than they did. That’s a noble cause, and the good news is that there are a variety of investment account options to help you take an active roll in investing for a child’s future.
The classic Roth IRA is a popular choice among adults who can start contributing for a child right away and let the power of compound interest begin for a long-term retirement account. A Roth IRA is taxed up front, so if an early withdraw is for educational expenses or a home, that withdraw won’t be taxed or penalized. If the child can keep the IRA for retirement – they’ll have some very “golden years” indeed!
A grantor’s trust is another option depending on what type of investing you want to do. Setting up a trust allows a granter to put in up to $13,000 in a year and while the account collects interest or investment value for the child, the granter still has some say on how that money can be used and when it can be withdrawn from the account.
Although rarely requested, UTMA/UGMA accounts allow a professional trader to buy and sell securities on behalf of a minor at a brokerage trade. This is not recommended for most people as it takes professional knowledge and experience to pull off well.
Finally, there are also a variety of college savings accounts or college investment accounts. So if your main reason for investing for your child’s future is to set up some defense against the ever rising costs of a good education and a college degree, then maybe a 529 savings plan is a course of action that you want to consider taking. This could be a great way to make saving for your children’s college a normal part of the process when budgeting a paycheck.
When it comes to investing for your children, there are a wide variety of accounts available. These give you the options you need to help make their future a great one.