Money tactics for kids
Now that we’ve covered the essential ‘soft’ skills of money in part 1, here’s some tactics to set your kids up for financial success. You can do these anytime after your child is born (or even before for the second two!)
Build their credit from birth
Add your children as ‘Authorized Users’ to your credit card accounts at birth. Most credit card companies will report this credit history to the credit bureaus, meaning this will help your child build credit.
Send them to college while saving on taxes
Invest in their education using a 529 plan for college, private K-12, or vocational schools. Check your state’s 529 plan, especially if you pay state income taxes, to see if there’s a tax benefit for you. For Washington state, we have no income tax as of writing, so it didn’t matter where I opened my account. If you’re in the same boat, go for Vanguard’s (Nevada) plan or Fidelity’s National (New Hampshire) plan.
Keep in mind that the tax-advantages aren’t anything to get too excited about for the 529 plan when compared to just a plain ol’ taxable brokerage account, so if you’re not sure whether your child will use the money for education, just save in an individual brokerage account instead since the 529 plan carries penalties if you spend the money on something other than allowable education expenses.
The same applies if you are in the 0% long-term capital gains and dividend tax bracket, since those are the only taxes you’d be saving in a 529 plan, so if you’re not paying them anyway, just use a taxable account for more flexibility. In 2022, this 0% bracket for long-term investment gains applies to single people making roughly less than $50,000 gross ($105,000 gross for married couples filing jointly.)
Invest for their future through gift accounts
A UGMA/UTMA account is a custodial account for your child that can shield up to $1,100 in dividends and capital gains each year with the next $1,100 only getting taxed at 10%, but beware the Kiddie Tax! The rules for keeping your child’s gift account tax-free can be tricky, so consider this an advanced strategy for tax-avoidance. You can always play it safer and give yourself more flexibility if you just open your own individual account instead and gift the money to your child later as desired.
It’s never too late to have important money conversations with your children– or your parents for that matter– but starting young is obviously the best strategy if you still can. Part 1 covered some important topics as well as how to start your teen investing, and here we’ve covered other things that parents can do to give their children a leg up financially, potentially while savings a little on their own taxes as well.
If your children are already grown but still need some financial advice– or if you just want to get your own financial house in order– reach out to me for independent, objective, and comprehensive financial planning and investment management.