Disclaimer: We may receive commissions for purchases made through links placed on our site. Please visit our Disclaimers page for more information.
As parents approach the prospect of their children transitioning into adulthood, a growing concern arises: the possibility of their children returning home after college due to financial challenges. In today’s dynamic economic landscape, the path to financial independence for young adults is fraught with obstacles, from navigating the workforce to understanding the intricacies of money management. This guide offers a comprehensive roadmap for parents to invest in their children's futures, equipping them with the tools necessary to foster long-term financial stability. By introducing children to the principles of saving, investing, and prudent financial planning, parents can create a foundation that encourages autonomy and fiscal responsibility.
Traditional Savings Account - this account can be beneficial as an operating account for your child. Money can be easily deposited into the account, drawn out of the account, and usually does not require a minimum balance. If your child is not typically needing any of this money, you want to place the minimum amount you can in this account due to its low interest rates. Professionals tend to think holding around 1,000 dollars in this account is sufficient for one off purchases, or providing your kid education around how to handle their funds. Here are a few bank names:
Custodial Account - This account can be very useful to grow your child's money and make it work in their favor. A custodial account can be a great way to save on a child's behalf, or to give a financial gift. Investing in financial instruments such as stocks, bonds, and mutual funds offers valuable opportunities for wealth growth. However, when making contributions to these accounts, it is crucial to adhere to the tax guidelines for 2024. For individuals filing taxes as single, the contribution limit is $18,000, while for those filing jointly, the limit rises to $36,000. Should contributions exceed these amounts, you may not immediately incur the gift tax; however, any excess would count toward the lifetime gift-tax exclusion limit, which stands at $13.61 million for 2024.
Contributions made to a custodial account represent an irrevocable gift. Although the parent or guardian retains control over investment decisions, the assets in the custodial account legally belong to the child. Unlike other savings vehicles, such as savings accounts or certificates of deposit, withdrawals from a custodial account are strictly limited to expenses that benefit the child. Once the child reaches the age of majority, which varies between 18 and 25 depending on the state, control of the account must be transferred to them. At that point, the child has full discretion to use the funds for any purpose.
Certificate of Deposit (CD) - If your child does not need to access the money for long terms, then this investment tool could be correct for growing as well. Typically when opening a CD, it is untouched for a certain amount of time with the range being between 6 or 12 months.
Brokerage accounts - This tool is for the novice investor who is learning the avenues of investing. It is highly recommended that a parent has a set amount of funds in their own brokerage account and then can transfer that set amount into your child's account. One thing to remember is that taxes will need to be paid with higher amounts earned, fees will be collected per trades, and children should seek guidance before making money moves. One cool offering Fidelity is providing for teens is their Fidelity Youth Account.
529 account - According to Fidelity, a 529 college savings plan has fewer restrictions than other college savings plans. These plans have no income or age restrictions and the upper limit on annual contributions is typically about $300,000 (varies by state). If you can afford to place 100 dollars a month this will set your child up to pay for their college education.
Roth IRA - According to T. Rowe Price, children of any age are eligible to contribute to an IRA, provided they have earned income, regardless of the source—whether from a summer job, such as lifeguarding, or a small entrepreneurial venture. If a child is 17 or younger and earns taxable income, they qualify for an IRA for minors. Similar to Roth IRAs for adults, the contribution limit for a Roth IRA for children in 2024 is set at $7,000, or the total annual earned income, whichever amount is lower. This allows young earners the opportunity to begin building long-term financial security early in life, while saving on taxes.
With the financial instruments outlined in this guide—from traditional savings accounts to Roth IRAs—offer a myriad of opportunities to secure your child’s future. Each account, tailored to different stages of financial growth, serves as a building block toward a stable and prosperous financial life. By strategically leveraging these tools and imparting valuable financial wisdom, parents can empower their children to navigate the complexities of personal finance with confidence and foresight. Whether through cultivating savings habits, fostering investment acumen, or planning for education and retirement, the journey toward financial independence begins with careful planning today, ensuring that the best things in life are indeed within reach.
.jpg)
.jpg)
.jpg)
.jpg)