- Katrina Rowson
Building Generational Wealth for the Holidays
During the holiday season, children create an endless list of gifts they would like to receive, including toys, games, clothing, and electronics. Usually, items that lose their value soon after the purchase. Although we all look forward to seeing children’s immediate expression of joy and gratitude while opening presents, parents should consider gifts that will build generational wealth for their children this year.
A bond is a loan you get from an issuer to gain interest when you cash it out. A bond can earn interest for 30 years if you do not cash it out early. So that is more than enough time to invest your money into something that can later pay for a child’s education, property, or other life milestones. You can purchase bonds directly from treasuredirect.gov or the secondary market like a brokerage firm.
If you have an entrepreneurial spirit, you can establish an LLC and hire your child as an employee. Make sure to follow employment laws by filling out a W-4 and I-9 for your child. As well as following child labor laws by ensuring the hours and wages comply with federal and state regulations. However, if your child has an entrepreneurial spirit, you can also establish an LLC and make them partners.
UGMA, UTMA, IRA or 529
UGMA, UTMA, IRA, and 529 are a variety of savings accounts that can help your child prepare for college and retirement. Uniform Gifts to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA) are both custodial accounts that allow you to transfer assets to minors. A UGMA account is limited to financial products such as cash, stocks, mutual funds, bonds, other securitized instruments, and insurance policies. A UTMA account can hold any form of property, including real property, real estate, or even a vehicle.
An Individual Retirement Account is good for children who have earned income. It allows them to save a portion of their earned income for retirement or other future expenses such as college or buying a home. You can open either a Custodial Roth IRA or Custodial Traditional IRA.
A 529 savings plan is an investment account that gives you tax benefits while preparing for college. It can be used for various educational purposes from kindergarten through 12th grade and higher education.
Stocks are a way to build wealth while investing in items of interest to you and your child. If it’s an item or company you frequently purchase from, you should have stock in it. For example, if your child is a fan of Disney, Apple products, or Hotwheels, invest in Disney, Apple, and Mattel stock. Open a custodial account for your child and research companies you both would like to invest in. Then hold it and watch your money grow.
A whole life insurance policy can cover the life of a minor and can be beneficial if a child develops a chronic health condition or chooses a risky career. Also, the money earned can be withdrawn from the cash value account or borrowed against it. When the child reaches adulthood, they can surrender the policy and receive the funds in full.
Consider making your child a beneficiary to your trust, assets, and retirement benefits. If something were to happen earlier than expected, you would want to avoid delegating your funds to the wrong person. Appoint a custodian to all the benefits until your child becomes of age so that there will be funds to manage their care while they are a minor but also assets still set aside for them for when they come of age.
So, in lieu of buying gifts, start growing generational wealth this holiday season for your children.