Parents have a lot to think about when it comes to saving for their child’s future. As cost of living rises, and higher education become more and more expensive, you may be left wondering how to invest for your child’s future.
There are many options for investing for your child, and with a little foresight and planning, you can take the steps necessary to ensure that your child starts out on solid financial ground. There are plans available to grow your money for education expenses, life expenses, as well as teach your child how to save themselves for the future.
How To Invest For Your Child’s Future Using Savings Accounts And CDs
One of the easiest and best ways to save for your child’s future is with a traditional savings account that compounds interest monthly. Open a savings account in your child’s name, and set aside an amount to be deposited every month into the account.
By putting your child’s name on the account, psychologically you are less likely to make withdrawals from that account. By setting up an automatic withdrawal you are ensuring that you are contributing to the account regularly.
A bank CD, or Certificate of Deposit, is another stable vehicle to save and grow wealth for your child’s future. CDs are FDIC insured, and you can shop around for the best rates. In the case of CDs, the longer the time frame for the CD, the higher the interest rate may be. CDs can also be rolled over again and again to further compound your earnings.
How To Invest For Your Child’s Future Using A 529 Fund
A 529 plan is specifically designed to help parents save for college, and is authorized by the IRS. 529 plans are operated by an educational institution or state, and can be used to fund your child’s college education at a variety of qualified colleges across the country.
With most plans, your choice of colleges is not limited to the state in which the plan is purchased. Carefully research the institution you child may wish to attend to see if it qualifies for the 529 plan.
529 plans provide unequaled tax advantages, as your investment grows tax-deferred until funds are withdrawn to pay for higher education. While these contributions are not deductible on your federal income tax return, distributions withdrawn to pay for the beneficiary’s college expenses come out tax-free.
There are a variety of 529 plans available to suit different risk tolerances, including an all ETF 529 fund, as well as flexible plans that allow you the freedom to move from state to state. There are also no income requirements, and many plans offer high limits on contributions.
Get Your Children Involved In Investing
The greatest gift you can give your child is to teach them how to save and invest for their future. It is never too early to get your child excited about saving and investing. There are many child-friendly investing sites, where they can learn the basics of saving and investing, and even create their own practice portfolios.
If you have a custodial investment account at your online brokerage in your child’s name, allow your child to pick a few stocks to invest in. Names such as Disney and McDonald’s are familiar to your child, as well as stable dividend paying investments.
By involving your child in the decision making, they get to participate in the excitement of watching their money grow, while learning about how investments work to grow their money. The more involved your child is, the more likely they will be to continue investing throughout their lifetime.