As a parent, you want to do everything you can to ensure your child is ready for the world. That includes setting up ways that they can start off on the right foot financially. There are steps both big and small that money experts say can set your kids up for success and help them build wealth.
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Read on to find out how to get your children on the right track when it comes to wealth.
Establish a 529 Education Savings Account
One of the best things new parents can do is set up a 529 account for their child, which helps fund their future education.
“A 529 account is an investment account program established and maintained by a state,” said Theresa Marx, senior wealth strategist for CIBC Private Wealth. “The earnings in a 529 account grow tax-deferred and withdrawals are income-tax free, provided such withdrawals pay for college, vocational or other accredited school, and related expenses.”
Another bonus? Some states even offer parents tax incentives for their contributions.
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Fund a Uniform Transfers to Minors Act Account
Marx added that setting up a Uniform Transfers to Minors Act (UTMA) account can help bring more financial stability to kids once they reach a certain age. “An UTMA account can be a simple and inexpensive way of making a gift to a minor child,” Marx said.
How it works is that a parent or otherwise named contributor can deposit into the account, and once the child reaches the specified age (between 18 and 25 depending on the state), they can access all of the funds.
Unlike with a 529 account, they don’t have to use it for education, but it can be a nice nest egg for going off to college or starting their career.
Ask For Cash Over Toys
Parents don’t have to be the only ones to save up for their kids. Alex Moore, the senior vice president, financial advisor at Wealth Enhancement Group, said it might be worth asking friends and relatives to give money rather than things for kids’ early birthdays.
“Ask your relatives to skip the noisy plastic toys and instead contribute to your child’s college savings fund,” Moore said.
Take Advantage of Trump Accounts
President Donald Trump introduced “Trump Accounts” for newborns earlier this year. Any child born after Dec. 31, 2024, and before Jan. 1, 2029, will be eligible to receive $1,000 in a Trump Account. From there, parents, relatives and others can contribute up to $5,000 each year until the year the child turns 18.
The money in the account can be invested in certain mutual funds or exchange-traded funds, so the balance can grow significantly between birth and a child’s 18th birthday.
“I believe that these accounts will not only make a difference for kids from a financial perspective, but will also give an entire generation experience with investing, and amplify the benefits of compound interest and starting early,” said Victor Wang, CEO of Stockpile. “This early exposure can help families practice making smart financial decisions, which will have an impact for generations to come.”
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This article originally appeared on GOBankingRates.com: 4 Ways New Parents Can Help Their Kids Build Wealth Early
