Saving Up for Your Child’s Future

 

 

Kids are expensive, we all know that. It doesn’t stop when they turn 18, either; in fact, it can often get even more expensive if they head off to college. At the moment, it seems that tuition fees are rising faster than inflation so while it might feel like you’re running a losing race, you should still get your sneakers on ASAP! Here’s some good ways to limber up…

 

A 529 plan

A 529 means that an investment agency in your state invests your money in vehicles like mutual funds. All you have to do is make the deposits every month and then pretty much leave it up to Old Father Time.

As long as the funds and gains go on educational expenses, you don’t pay a cent to the taxman; the fees themselves, as well as materials, books and so on – all covered. What’s more, your individual state might even give you a tax break!

Some states also let you deposit as much as $300,000 and if it turns out that your first child doesn’t fancy college much, then you can transfer the fund to their younger sibling.

However, if you don’t use this fund for higher education at all, then you’ll have to pay a 10% penalty and taxes on the gains.

Plus, you don’t have much control over how your money is invested and you can only change things once every year. Lastly, as with all investment vehicles, you could make a loss.

 

Use precious metals in your Roth IRA

You might fid this a bit leftfield, but precious metals don’t lose their value, especially if they’re left to mature for at least a decade. You can diversify your Roth portfolio with gold coins from Golden Eagle Coin and as long as they stay in there for long enough you’ll get some good gains. Plus, as a Roth is primarily a retirement account, you can still use the fund and its earnings even if your children don’t go to university.

 

A custodial account

These accounts are just like any other savings account apart from the fact they’re in your child’s name.

They’re nice and easy to deal with – you deposit the money and let compound interest do its thing for as many years as it takes for your child to reach 18 or 21 (depending on your home state).

You can set up one of these accounts at your local bank and put in as much as you want or can. You can also withdraw money anytime, as long as it’s spent on your child and not on a new car. There are a few tax benefits, like the fact the first $950 in gains isn’t taxed.

Unfortunately, having an account of this nature can get in the way of further financial aid because it’ll be classed as an asset.

Even more unfortunately, you lose power over the account when your child hits 18 or 21 so from then on in, you can’t stop them buying that new car you had your eyes on…

Then there’s the tax after the first $950. You’ll pay this every year and also some after every withdrawal. Lots of grandparents like to set up custodial accounts as a useful add-on to the main investment vehicles the parents have going on.

 

 

 

 

 

 

 

 

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