We often see the New Year illustrated as a new baby arriving, ushering out old Father Time.
As a parent, the arrival of a new baby should also be the beginning of planning for that child’s future. At One Financial Services, we believe it is never too early to start planning your family’s financial journey.
Opening a 529 plan, specifically for college savings and other education expenses, is a good way to begin. These tax-advantaged investment accounts can be started by anyone over the age of 18 for anyone of any age as the beneficiary.
Contributing to a 529 plan is investing your money, not simply saving it. There is often a variety of investments to choose from which can help your investments grow much faster than depositing money in a standard savings account. And, contributions to a 529 plan may be tax-deductible on your state tax return, and withdrawals are usually tax-free when used for qualifying educations expenses.
By giving your investment nearly two decades to grow in a 529 account, before your child starts college you could accumulate nearly $41,000, based on contributing $100 per month at an average 7% interest.
That’s a tremendous head-start to pay for higher education and a way to help your child from racking up crushing student debt.
As They Grow…
As your children grow, other investment options may be useful in providing them with a financially confident future.
Roth IRA retirement savings accounts allow you to contribute after-tax dollars while receiving after-tax growth and tax-free qualifying withdrawals. Your child will need earned income to contribute to a Roth IRA, so as soon as they begin earning money with that after-school job, they can start contributing to the account where their money can grow without any capital gains taxes.
Teaching financial responsibility along with an understanding of financial markets is one of the best lessons your children can learn once they’re old enough. Consider buying quality stocks for a child or grandchild to teach them about the changes in certain equities. When they become of legal age you can transfer the account to their name giving them the gift of a head start to a lifetime of financial confidence.
Whether you are experiencing the joy of a new arrival or the satisfaction of watching your children grow, our One Financial Services team is here to help you build a strong financial future.
Prior to investing in a 529 Plan, investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.