If you’ve been blessed with grandchildren, you may be wondering what you can do to give them the best future possible. Investing financially is just one way to help set your grandkids up for success. In this post, we’ll look at 5 of the best ways to invest for your grandchildren.
Should you invest for your grandchildren?
Investing for your grandchildren can not only give them a head start on their financial success, but it can also be an excellent opportunity to teach them about the value of money, hard work, and compounding growth. If you choose to invest for your grandkids financially, there are a variety of options to choose from.
What you need to know before you invest for your grandchildren
Don’t get too excited, though. Before you start setting money aside, you have a few important considerations to make.
First of all, you’ll want to start by talking to your children before you give money to their children. The parents of your grandkids may already have certain plans in place or accounts open for their kids, and the last thing you want to do is throw a wrench in their savings plans. Instead, talk to them about how you can partner with them or contribute to any plans they may already have. You all have the best interest of the kids in mind, so make sure you’re working together.
Next, whether you open an account, make recurring deposits, or purchase stocks for your grandchildren, it’s important to use these methods to teach them the value of money, investing, and hard work. Help prepare them to be wise stewards of they money you’re entrusting to them when they’re of age. When they’re old enough, talk to them about the investment opportunities you’ve set up. Explain to them and let them observe how the amounts grow over time through compound growth.
Lastly, and perhaps most importantly, make sure that your own financial house is secure before you begin investing for your grandchildren. Are you free of debt? Do you have an emergency fund in place? Are you investing for your own retirement? If not, you might end up relying on your kids when you retire and don’t have adequate funds. Ensure that you have a solid plan in place for your own retirement before you help your grandchildren get ready for their future years.
5 ways to invest for your grandchildren
- Deposit into their savings accounts
- Open a 529 college savings account
- Use a Roth IRA
- Open a custodial account
- Buy them stocks
Deposit into their savings accounts
Opening and depositing into a child’s savings account is the simplest way to set aside and save money for your grandkids. It’s easy to create and easy to set up deposits and even recurring transfers. The downside is that savings accounts do not incur interest as quickly as some other investment options.
Open a 529 college savings account
A 529 account allows you to save for your grandkids’ college expenses, and it grows tax-free. Additionally, withdraws for qualified school expenses, such as tuition, books, and board, are also generally tax-free. When you’re looking for a 529 college savings plan, be sure to compare fees, contribution limits, and any other specifics the plan may include, as these sometimes vary between states.
Use a Roth IRA
It’s never too early to start investing for retirement. In order to open a Roth IRA, your grandchild simply needs to have an earned income. This could be a W-2 job or odd jobs (however, in this case, they will need to file a tax return, so definitely talk to your kids and grandkids first). Consider matching your grandchild’s deposits to show him or her the compounding value of investment.
Open a custodial account
A custodial account is an excellent option for younger children who may not be earning money yet. These accounts are managed by an adult, even though they are in the child’s name. When the child is of age (which can be 18, 21, or 25, depending on the state), he or she will become the sole owner of the account.
Buy them stocks
Once a minor has a custodial account, stocks can be purchased through the account. Stocks are a great way to build financial security for your grandchildren from a young age. The most important part is choosing the stocks wisely. If you’re not an experienced investor, consider having a relative who is experienced in investment manage the portfolio, or talk to a financial planner.
Need advice on the best ways to invest for your grandchildren?
Milestone Wealth Management exists to help you make sure that your financial future is secure. Whether you need to make a plan for yourself, your kids, or your grandkids, we’re here for you. Schedule a meeting today, and let’s create a custom-fit plan so you and your family can be prepared for whatever the future brings.