4 Ways To Start Building Generational Wealth for Your New Baby
Written by
Angela Mae
Edited by
Jenna Klaverweiden
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Starting a family — or expanding on your current one — is exciting, but one of the big questions you might have is how to set your little one up for success. Those first 18 years might seem like they’ll last forever, but they fly by.
The sooner you start financially planning, the sooner you can set your child up for financial success and build generational wealth for them and your family as a whole.
Here are some ways to get started.
Also see four ways to raise kids to be financially independent as adults.
Set Up a 529 Plan
A 529 plan is a tax-advantaged plan designed to help with your child’s (or grandchild’s) college expenses. Contributions aren’t tax-deductible, but withdrawals are tax-free if used for “qualified” higher education expenses — like tuition, school fees or required materials.
Thanks to the SECURE 2.0 Act, you can also roll over any unused 529 plan funds into a Roth IRA — without taxation. There are certain rules to follow, though. For example, the 529 plan must have been active for at least 15 years. The 529 plan beneficiary and the Roth IRA owner must be the same person.
“Being able to roll over unused 529 plan funds can give your children a great head start in planning for retirement,” said Michael Rodriguez, CFP, owner of Equanimity Wealth.
Set Up Automatic Savings
Setting aside a savings account for your child is a great step to help them build wealth. As long as you only add to the account, the money will grow over the years — potentially until your child is 18 or older and you can switch over the account.
Just think of what 18 years of consistent (ideally, automatic) savings can do for your family. Say you deposit $1,000 into an account with a 4% annual percentage yield when your child is born. Now, say you deposit $50 a month every month until your child turns 18. By the end, they’ll have nearly $18,000 — and that’s assuming you never invest it or put the money into an account with a higher yield (like a certificate of deposit or investment account).
Invest, Invest, Invest!
Investing is one of the best ways to build generational wealth. The sooner you get started, the sooner you can get your child on the right path financially.
There are plenty of ways to invest, but some experts suggest going with stocks.
“If you start when your child is a newborn and invest just $8 a day into the S&P 500, they could have over $100,000 by the time they graduate high school at 18, assuming an average annual return of 7%,” said Victor Wang, CEO of Stockpile.
According to Wang, starting early is “everything.”
Educate Them in Financial Literacy
Don’t take the power of financial literacy for granted. Just because you have money to leave behind doesn’t mean it’ll last. Nor does it mean your children will know how to use it wisely.
“Teach your kids good money skills early, like how important it is to save first, invest second and spend last, so they learn how to manage money responsibly,” Wang said. “Start the money conversation early and be mindful about your own emotional relationship to money: Your attitude creates their attitude. If you’re positive and optimistic about money, your kids will be too.”
It’s okay if the conversation gets tricky at times. And it’s okay to repeat the lessons you want your kids to learn. They might not understand everything right away, but the things you teach them now will go a long way toward setting them up for success.
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Sources
- Michael Rodriguez, Equanimity Wealth
- Victor Wang, Stockpile
