Experts Compare the Best Ways To Secure Money for Your Children — From Education to Living on Their Own

Caucasian mother and daughter working at desk.
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Financial planning on your own accord is complex enough, as 401(k)s, IRAs and Roths can all be sufficiently dizzying when it comes to investment plans. When you throw in a child or two, figuring out how to finance education or help with a wedding, home or other needs can seem like you’re burning the candle at both ends.

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The big divide among saving for your children, however, is around education. 

Prioritizing Education Savings

The one thing most experts agree on is that children who begin their professional lives without the burden of huge student debt have a better chance of success and overall well-being. 

“Student loan debt can interfere with a child’s overall well-being, specifically with the ability to buy a home, save for their own retirement, start a family and save for their own children in the future,” Chief Operating Officer at Gift of College Patricia Roberts said. “Every dollar saved in advance can help a child avoid or minimize the impact of educational debt. Helping a child to graduate with little or no debt sets the child up for a brighter financial future.” 

Building Wealth

The burden of student loans can also hinder future decisions for children to start families of their own if they are bogged down financially with heavy payments each month.

Roberts said that for these reasons, tax-advantaged 529 plans are among the most popular options when it comes to saving for your child’s future. This is due to their flexibility in the various forms of education that are covered. 529 plans allow parents and/or grandparents to contribute to a post-tax account that grows tax-deferred and is distributed tax-free for qualified education expenses.

Related: How To Open A 529 Plan to Save For Your Child’s Education

One of the biggest advantages to these types of accounts is that they are flexible in terms of the beneficiary for whom the funds are used for. Let’s say your child got a scholarship, decided to defer college for a few years or decided not to go at all — they can transfer the 529 to their own child (all while the account grows), or transfer to a sibling. 

Prioritizing Savings for Children Out of College or Starting Their Lives

Building Wealth

For those who have made it out of the education years and are looking to help their children with other financial needs in adult life, there are a couple of golden rules to live by. 

Avoiding debt at all costs and starting as early as possible are the two main principles that Brad Young, Certified Financial Planner and President of Maryland Financial Planners, encourages parents to set their sights on. “For students who have jobs, consider a Roth IRA and have them make systematic monthly payments to it,” he said. “They will receive tax-free growth over their life and the funds are used in retirement.”

Roth IRA’s are wonderful ways for parents to help their children financially grow regardless of age. Your child will need to open the account themselves, and you and other family members can contribute as much or as little as you’d like. 

While Roths are used for retirement, they can always be taken from in emergency situations with penalty and tax paid. Founder of LTG Capital LLC Ariel Acuna also puts his money on Roth IRAs as the starting strategy for older-age children. “To build wealth (and to the extent their earned income allows), it’s great if kids can add to or max out Roth IRAs or Roth 401(k)s,” he advised. “Parents or grandparents can help by subsidizing this effort.”

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If children make above the allowable income limit to contribute to IRAs of any kind, they can open their own brokerage accounts to which parents and grandparents can contribute. It’s a great idea in lieu of gifts at holidays to have family members contribute — however small or large — to brokerage accounts that can grow in accrued interest year over year.

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About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 

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