Investing in the future of your family can be tricky. What may seem like a smart option can often end up costing you big money down the line, especially when it is time to send junior off to college. There can even be repercussions to doing something as seemingly harmless as opening a savings account in your child’s name. However, there are some investments that are always a good idea to undertake. Here are five of the top investments that you don’t want to one day only wish you had made:
The Roth IRA – The Roth IRA is the easiest way to give your child a head start with a financial tool because it can be opened and remain under the child’s name from start to finish. Once they turn 18, they maintain control of their account. Restrictions prevent the child from withdrawing until the age of 60. Exceptions do apply for hardships and other important life expenses, making the investment quite fail proof for those that worry about their child’s spending habits. The long-term payouts on a Roth-Ira can be huge, collecting compound interest.
The 529 – Colleges often decide how much money to grant their applicants based on the income and assets of their family held just before they apply. Students that have a large sum of money in their own standard savings account can be given less money as a result. Try a 529 college plan instead. These plans are similar to an IRA, however, parents can use them to develop investment packages that seek higher returns when a child is still young. After years of making gains the funds are then shifted into a more diversified, long-term portfolio. The tax advantage enables a family to defer taxes now and actually never pay them conditional upon the money being used for tuition.
The UTMA and UGMA -These two options are best for families that know their children will likely not end up attending college, but that still need similar tax breaks that help them save money while young. The tax breaks come in the form of exemptions that last until they turn 18. There is great flexibility, preventing restrictions of any sort so long as the money can be shown to directly help the child’s life. Furthermore, the first 2,000 dollars are almost tax free, while all money gained after that is taxed at the parent’s income tax rate.
Invest in Health – Though not a financial instrument like the ones mentioned so far, one of the best investments you can make in a child is in their physical health. By regularly investing in coverage plans such as the basic health insurance and full coverage dental insurance you can save both you and your child big money on the costs of treating degenerative diseases that result from lack of care.
The Crowdfund – Crowdfunds have been steadily rising in popularity since the 1980’s for a reason. By tucking away just a couple thousand dollars in a crowd fund investment today, you can collect returns on odd-job projects such as a film or a local start up. Not to mention, the unique network you develop in the process is an investment in and of itself.