You can set up either a traditional or Roth IRA based on the kind of tax treatment you prefer. A Roth IRA lets your child make tax-free withdrawals when they retire. However, traditional IRAs come with a tax deduction in the year of contribution. The upside is that once your kids are old enough, they can take penalty-free withdrawals from their accounts for qualified education expenses or to put money down on their first home. If you want to hedge your bets with something a little safer, a certificate of deposit CD may be the answer.
In particular, you should consider a CD ladder. With a CD ladder, you purchase multiple certificates of deposit with different maturity dates and interest rates. When a CD matures, you can roll it over into a new one. Then you can keep repeating the process for as long as you want to keep saving.
Every parent wants to put their children in the best position for success. One key thing to remember is that your own financial future needs to come first. Before investing in any account for your kids, make sure that you save enough for your retirement. Then the program will narrow down your options from thousands of advisors to three fiduciaries who suit your needs.
Offerings are typically limited to a selection of target-date funds a mutual fund created to automatically shift your portfolio mix as you age or investment mixes. That means a kid who has held a summer job or babysitting gig in the past year can open one, too. Although a parent will have to open the account on behalf of the child.
Keep in mind that money held in an IRA for a child is subject to the same rules as money held for an adult. Withdrawals before retirement age may result in a 10 percent penalty and be taxed. While Roth IRAs allow for penalty-free withdrawals of your contributions, in general, IRAs are designed for building long-term wealth and may not offer the same immediate versatility as traditional and custodial brokerage accounts.
Parents who want to help set their children up for the long term and recognize that funds may not be as accessible in the short term. A gift solely for their education, for instance, might be best kept in a account. But if you value offering your child flexibility, you might look to custodial accounts. Be sure to talk with your financial advisor to determine which account type and benefits might be optimal for you and your family.
Investing involves risk including loss of principal. This article contains the current opinions of the author, but not necessarily those of Acorns. Such opinions are subject to change without notice. This article has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.
Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. John Schmidt is a staff writer for Acorns and Grow. Thanks for signing up. You'll hear from us soon. Back to Money Basics. Custodial brokerage account Custodial brokerage accounts work a lot like accounts you use to invest for yourself.
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When the market dips, they all dip. Broadly defined, alternatives are considered anything not stocks, bonds or cash. An alternative investment could be anything from precious metals like gold or silver, to real estate, to collectibles. My neighbor, Rick, has about 10 cars including a Shelby Cobra he bought the week before Carroll Shelby died.
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