Investing for the Next Generations
By Ryan Hayden, Beyond Wealth Advisors
How many times have you said “I wish I had started earlier?” Or, “I wish I knew then what I know now?” We’ve all done our best to love and prepare our kids and grandkids for the future. What about their financial future?
There are some investments for your child or grandchild that can help provide for their future. Here are three common account ideas to benefit your next generations.
529 College Savings Plan
Account is controlled by an adult for the benefit of a child.
As soon as a child has a social security number, they can have a 529 account.
Each state has different rules on what tax benefits there are. For example, Kansas gives a state tax exemption for $3000 per donor per child per year.
Assets grow tax free, and gains are not taxed if the money is used on qualified education expenses.
There are penalties for using the growth portion of assets that are not applied to qualified education expenses.
The beneficiary of the account may be changed within a number of family relationships.
Custodial (UTMA/UGMA) Account – Uniform Transfer to Minors, Uniform Gift to Minors
Account belongs to a specific child and is controlled by custodial adult until the child is 18- 25 depending on the state.
A child must be younger than 18 to open an account.
There are no contribution limits, but an individual may gift up to $18,000 per year both tax-free and without adding to their lifetime gifting accrual.
Withdrawals may be taken at any time, but must be used for the benefit of the minor in any way. The beneficiary of the account may not be changed.
Roth IRA
Account belongs to a specific child, but is controlled by the custodian adult until age 18-25 depending on state.
A child must have reported employment income in order to contribute to an account.
Contribution may not exceed the lesser of the income reported or the maximum of $7000 for 2024.
No tax or penalty onwithdrawal of contributions. Earnings on the account can be withdrawn tax- free after the account has been funded for five years and the child reaches 59 ½ years of age. There are special rules for use when there has been a death, disability, or first-time home purchase.
The beneficiary may not be changed.
Each of these accounts have a wide variety of investment options, and certainly create an opportunity to give them an educational experience about money, investing, and time!