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Financial planning on your own is complex enough, as 401 (k), IRAs, and Roths can all be overwhelming enough when it comes to investment plans. When adding a child or two, figuring out how to fund an education or help with a wedding, home, or other needs can feel like you’re burning the candle at both ends.

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However, the big difference between saving for your children is education.

Priority to education savings

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

“Student loan debt can be detrimental to a child’s overall well-being, especially with the ability to buy a home, save for their own retirement, raise a family, and save for their own. children in the future ”, COO of Gift of College. Patricia Roberts said. “Every dollar saved up front can help a child avoid or minimize the impact of school debt. Helping a child graduate with little or no debt prepares the child for a better financial future.

The burden of student loans can also hamper children’s future decisions to start their own families if they get bogged down financially with heavy monthly payments.

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 an after-tax account that grows tax-deferred and that is distributed tax-free for qualifying education expenses.

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

Prioritize savings for children leaving college or starting their life

For those who have graduated and are looking to help their children with other financial needs in adulthood, there are a few golden rules to follow.

Avoiding debt at all costs and getting started as early as possible are the two main principles Brad Young, Certified Financial Planner and President of Maryland Financial Planners, encourages parents to strive for. “For students who are employed, consider a Roth IRA and have them make systematic monthly payments there,” he said. “They will enjoy tax-free growth over their lifetime and the funds will be used in retirement.”

Roth IRAs are wonderful ways for parents to help their children grow financially, regardless of their 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 want.

Although Roths are used for retirement, they can still be withdrawn in an emergency with penalty and tax paid. LTG Capital LLC founder Ariel Acuna is also investing in Roth IRAs as a starter strategy for older children. “To build wealth (and as long as their earned income allows), it’s great if kids can increase or maximize Roth IRAs or Roth 401 (k),” he advised. “Parents or grandparents can help by subsidizing this effort. “

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If children earn above the income limit allowed to contribute to IRAs of any kind, they can open their own brokerage accounts to which parents and grandparents can contribute. It is a great idea, instead of gifts during the holidays, to have family members, large or small, contribute to brokerage accounts where the accrued interest can increase from year to year. other.

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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 banking and investment research. Georgina has written for Investopedia and WallStreetMojo.


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