Child’s Financial Literacy: Remember the endless wide, wobbly steps your child took when he was learning to walk? Those precious moments may seem a world away in the complex financial world, but here’s the secret, as a forward-thinking parent, you can start investing in your child’s finances in knowledge today. Here’s how two powerful tools help you better reach your goals: a 529 plan and a Roth IRA.
529 Plan – A Seed to build tomorrow.
Think of the 529 plan as a magic storage box, especially for education. Every dollar you put in grows untouched by Uncle Sam, and when it’s college time, tuition, books, and even ramen noodles are waived tax-free as well. Let’s say you start investing in your child’s financial skills by putting $100 a month into a 529 plan for your 1-year-old. By the time they turn 18, assuming an average return of 6%, your nest egg will be worth about $35,000. That was a wonderful start to their college journey. (Try out an investment calculator to find out how much you could have by starting with $50, $150, or $200.)
But the story doesn’t end there. Thanks to today’s game-changing rules, you can now transfer up to $35,000 from your 529 plan to a tax-free Roth IRA. This is where magic really abounds.
ROTH IRA – A time capsule
A Roth IRA is like a great retirement power. Contributions are usually made with after-tax dollars, but the real benefit is tax-free withdrawals in retirement. Think of a Roth IRA as a time investment for your child’s retirement savings. Imagine investing $35,000 today, then watching it grow into a $1.3 million portfolio when they’re ready to retire. Talk about a long-term investment in your child’s financial skills.
Note – Child’s Financial Literacy: the timeline is based on $100 investment for next 17 years.
This information is provided for informational purposes only and does not constitute financial advice. Before making any investment decisions, it is crucial to conduct thorough research and consider individual financial goals and risk tolerance. The stock market involves inherent risks, and past performance is not indicative of future results. Always consult with a financial advisor before making investment decisions.
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