Friday, November 16, 2018

Securing Your Child’s Financial Future

We all know how expensive children are and they don’t necessarily get any cheaper after they leave home, especially if they go off to college! Tuition fees are, at the moment, rising faster than inflation so instead of hoping your salary will catch up, think about making some extra investments to fill in the gaps.

You could start a 529 plan
In a 529 plan, an investment agency in your home state invests your money in mutual funds and similar vehicles. Just start making your deposits early on, each month, and let time take its course.
If you spend the money in your 529 on educational expenses like fees, books and other tuition materials, then you don’t pay a single cent to the taxman. In some states you might even get a tax break!
You can, in some states, deposit up to $300,000 in the 529 and then, if the designated child decides not to go to college after all, you can transfer the whole thing to a sibling.
If you don’t use this money for higher education, however, you’ll be taxed and also pay a 10% penalty on the gains. You also have very little control over how the agency invests your money and you can only change once each year. You can also, of course, make a loss.

Add precious metals to your Roth IRA
If you think about it, your Roth IRA is one of the ultimate long-term investment vehicles, so whatever you put in it is almost certain to gain in value. You can diversify your Roth with precious metals, so look here for some good ideas and advice. Unlike with the 529, you can still use the funds from your Roth even if the kids don’t go to college, as it’s a retirement fund.
You could use a custodial account
These accounts are like pretty much all other savings accounts except they’re taken out in your child’s name.
It’s as simple as depositing the money throughout the years and letting time and compound interest work for 18 or 21 years, according to the rules in your home state.
You can set these savings accounts up at your local bank and then deposit as much as you want. Most accounts allow you to withdraw money as you need it, but only if it’s to be spent on your child. You can also get some tax benefits – the first $950 in gains isn’t taxed.
You do need to think about the college years though because having this sort of account is classed as an asset so it can reduce or impede further financial aid.
You also lose your power over the account when Junior hits 18 or 21 so you can’t stop them accessing the money to spend on whatever they want.
Then, of course, there is the tax levied on any gains after the first $950. This will be due every year and also after each withdrawal, so take some advice and do your math before committing.

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