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Parents strive to provide children with every possible advantage and the professionals at JTM Williams (JTM) believe this includes laying the foundation for a secure financial future.
We will explore some essential steps, including basic tools (such as bank savings accounts) and more complex investment vehicles available for educational funding and early building blocks for retirement security. Strategies and tools available to parents and guardians are numerous and vary according to investment amounts, time horizons and individual objectives.
Building a strong financial roadmap for children.
Financial Literacy: Introducing children to financial literacy from an early age includes teaching the basics of money management; budgeting; saving; goal setting, etc. Cultivate open discussions about financial topics and lead by example in your own financial habits.
For example, allocate allowances for household chores and have your child deposit a portion of the money in a simple savings account that they can watch grow over time. Parents or grandparents may act as custodians of these accounts until a child reaches the age of maturity thus enabling some control over withdrawals.
Minors witness their money grow with interest; are taught the concept of delayed gratification as they save for specific goals; and develop a sense of responsibility and independence in managing their finances.
Educational Accounts: Prioritize your child's education by saving for educational expenses as soon as family finances allow. Consider options such as 529 plans or other education savings accounts to cover tuition, books, and other educational costs. Each state offers their own 529 plans, and the number of options to choose from can be overwhelming for parents or grandparents. Recent changes to the tax laws governing 529 plan withdrawals broadening permitted uses of funds beyond four year colleges or universities. Proceeds may also be used for trade schools, and in some circumstances, may transfer to a Roth IRA if not being used for higher education.
We appreciate that the options can prove confusing and welcome questions.
Investment Accounts: Consider opening an investment account to help children learn about investing and wealth accumulation over time. You may contribute regularly or periodically, and involve them in the allocation process as they grow older. These types of accounts are customarily referred to as custodial accounts, under various states’ UGMA(Uniform Gift to Minors Act) or UTMA (Uniform Transfer to Minors Act) regulations.
If your minor child receives a significant educational or other monetary gift, we advise you to explore establishing trust accounts or other long-term wealth/tax management structures. Any adult (in addition to parents or grandparents) can gift cash or securities to minors and it is important these assets are allocated and titled properly.
Encourage Entrepreneurship: Foster your child's entrepreneurial spirit by supporting their business ideas and teaching them about entrepreneurship. This encouragement can instill valuable skills such as creativity, problem-solving, and financial management.
Retirement Planning: Introduce retirement planning strategies and contribute to your children's future financial success. One option is funding a Roth IRA that provides tax-free income during retirement. Contributions are made with after-tax dollars, meaning retirement withdrawals may be made tax-free.
Savings vehicles can be used as financial teaching tools as well as investment accounts. When children are older, you may wish to consider having quarterly or annual portfolio reviews with them just as we encourage our clients to conduct with us. Minors will continue to build a solid understanding of the value of money; benefits of budgets and savings; and important investment principles such as compounding.
Financial Planning with JTM:
We stress the importance of securing a prosperous future for your child. Matt Williams, CFP(r), is currently in the process of doing the same for his own young son and is well-versed in available account options, tax structures, laws and regulations.
Partner with JTM today and secure a bright future for your child. We kindly welcome you to schedule a complimentary, no-obligation consultation in either our Alexandria, Virginia, or Bridgeport, West Virginia offices. We also offer convenient confidential on-line and phone consultations if preferred.
Don’t look back a year, two years or five years from now and regret not starting as early as possible building a solid foundation for your child’s critical education funding or retirement needs.
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