Learn how you can prepare for his or her financial future.
When financial planning for your child or grandchild, can you prepare and help ease him or her into a bright future? Is your best choice a college designated plan or something else?
Most people can only invest a small percent of their income for children or grandchildren, and subdividing it into several categories makes no sense. Each type of account also demands an understanding of the current tax code and possible tax penalties if one chooses wrongly! But tax penalties should not always be feared.
There are many choices when you are financial planning for your child: 529 Accounts, Coverdell Education IRA’s, Uniform Gifts/Transfers To Minors, State Tuition Programs, and Roth IRA’s for those who work. Which should you choose? It depends – and – how much money do you have to commit?
|Choose...||When you want to...|
|529 Accounts||Concentrate on college expenses|
|Coverdell Education IRA||Support grade or high school education|
Uniform Transfers/Gifts to Minors
|Give a future gift or inheritance from you, but you don't care how they use it|
|Roth IRA||Allow the child to pull out the yearly contributions with no tax cost (using the money for education might also provide him with a tax credit while the tax-free earnings left in the account can continue to grow)|
“Keep it simple” still works. Setting up an investment account always helps one’s financial future. You need not decide today if the money is to be used for college, but it can be! And since earnings along the way start out being taxed at the child’s tax bracket (and frequently fall below the taxable amount), a custodial account can be an effective tax vehicle.
No matter what vehicle you choose, invest it so that a good return can be earned. That means taking some risk: a well-diversified stock mutual fund can yield high returns, while a “safe” guaranteed account will be limited in its earnings.
Many of our clients want help with financial planning for their child or grandchild, but the options are confusing until they speak with a helpful financial advisor. Contact us for an appointment today. There is an answer regarding which option will work best for you and your beneficiary.