As a parent, you want the best for your children, and that includes giving them a secure financial future. Even if you haven’t saved enough for your own retirement, it’s not too late to start building a better financial life for your kids.
The Power of Compound Interest
Time is on your side when it comes to saving for your children’s future. Compound interest can work wonders, even with small, consistent investments. Consider this: if you invest just $100 per month for your child from birth to age 18, with an average annual return of 7%, you’ll have saved about $43,000 by the time they’re ready for college.
A Simple, Low-Cost Investment Strategy
You don’t need to be a financial expert to start investing for your child’s future. A simple, low-cost strategy is to invest in a tax-advantaged 529 college savings plan or a custodial account, such as a UGMA/UTMA account. Consider investing in a total stock market index fund, such as VOO, which has historically provided average annual returns of around 10%.
The 529-to-Roth Escape Hatch
One common objection to 529 plans is: what if the child does not go to college? Since SECURE 2.0, there is an answer. A 529 account open for at least 15 years can be rolled into a Roth IRA for the beneficiary, up to a $35,000 lifetime limit. Contributions from the last five years are ineligible, and the rollover is limited by the annual Roth contribution limit and requires earned income. Check the current IRS rules before using this; the details are exacting. But the escape hatch turns the 529 from a bet on college into a head start on retirement.
Automate Your Savings
To make saving easier and less prone to being neglected, automate your investments. Set up a monthly transfer from your checking account to your child’s savings or investment account. This way, you’ll ensure that you’re consistently setting aside money for their future.
Additional Tips for Securing Your Child’s Financial Future
Take Advantage of Employer Matching: If your employer offers a 401(k) or other retirement plan matching program, contribute enough to maximize the match. This is essentially free money that can help you build a more secure financial future for your child.
Use the 50/30/20 Rule: Allocate 50% of your income towards necessary expenses like housing, food, and utilities. Use 30% for discretionary spending, and 20% for saving and debt repayment.
Avoid Lifestyle Creep: As your income increases, avoid the temptation to inflate your lifestyle by spending more on luxuries. Instead, direct excess funds towards your child’s savings and investments.
Teach Your Child the Value of Money: Educate your child about personal finance, budgeting, and responsible spending habits. This will help them develop a healthy relationship with money and make informed financial decisions in the future.
Know the Handoff Date
A custodial UGMA/UTMA account has a catch the 529 does not: the money becomes the child’s, outright, at the age of majority, which is 18 or 21 depending on the state. There is no takeback when your 18-year-old wants a sports car instead of tuition. If that bothers you, the 529 keeps you in control. Annual gift-tax contributions to either type of account count against the yearly gift-tax exclusion, so confirm the current exclusion amount before contributing.
Empowering Your Child’s Financial Future
While you may not have saved enough for your own retirement, it’s not too late to start building a better financial life for your child. By automating your savings, investing in a low-cost, tax-advantaged account, and teaching your child valuable financial lessons, you can empower them to achieve their goals and create a brighter financial future.
Winchell House 
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