Life is good when you understand your finances. There are many tools parents have to assist children in getting a head start.
To prepare your children financially, YOU must be financially prepared. Therefore, getting your act together is a top priority before your children leave home.
I spent many years struggling with my money until I started to read books. Now, my wife and I are on solid footing, are looking at financial freedom, and can help our kids avoid our mistakes.
My Recession Investing Plan
Time is precious. The most crucial element of building wealth is time. I am 41, and my wife is 38; we are roughly halfway through our lives.
However, my kids are 17 and 13; they have many more years to grow their wealth. If we can get money into their accounts now, they stand to profit for a very long time.
Today, I present four investment options using time and compounding power to grow your kid’s net worth: Series “I” Bonds, Roth Individual Retirement Accounts, Health Savings Accounts, and 529 Savings Plans.
I will give a quick rundown of each investment and lay out a plan to use these in conjunction to build a solid financial product for your children—let’s begin.
What is Your Dream Retirement?
Series “I” Bonds. Series “I” Bonds are my favorite investment product on my channel. They are simple to understand and use.
As soon as your child receives their social security number, you can begin putting money into their Series “I” Bond account via the TreasuryDirect website (up to $10,000 per year).
Series “I” Bonds compound on top of themselves and grow tax-free until you liquidate them. You can also redeem them without paying taxes when using them on qualified educational expenses.
Roth IRAs. Your child can only use a Roth IRA once THEY have earned income (a paycheck). However, if you own your own business, you can pay your child as soon as it is legal in your state (by hiring them).
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You pay taxes on the money you put into a Roth IRA, but it grows tax-free. You can then withdraw the money tax-free during retirement.
Because of the low annual limits (roughly $6,000 per year), it behooves us as parents to get as much cash into these accounts for our children early.
For example, if your child turns 18 and has a job, you can assist them in getting $6,000 into a Roth IRA. If you let that money grow (without adding more), it will turn into $223,000 at age 60 (at a 9% return). The power of compounding can create fortunes over time.
Health Savings Accounts. HSAs are triple tax-advantaged accounts. The money going in has a tax advantage, it grows tax-free, and you can withdraw the money tax-free for qualified medical expenses.
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The catch is that getting into an HSA healthcare plan is tough. When your child turns 18, it’s an excellent time to shop around for HSAs.
You can then help max out their contribution for the first few years. If you can get $10,000 into an HSA before age 22 or so, it can be life-changing.
The power of an HSA is the annual high-deductible limit. If your annual limit for an individual is $4,000 for the year, that’s the max you will need to spend on health care.
If you have $20,000 in your account, you’ll still have $16,000 remaining. Plus, the money is in index funds, so it continues to grow along with the market.
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HSAs are powerful when your children are young because they won’t hit the deductibles very often. As the money grows, the deductibles will be a small amount of their total account.
If they turn 59, the account is still tax-free for medical expenses, but you can withdraw the money for non-medical issues. The account turns more into a traditional IRA at that point—for non-medical expenses.
529 savings accounts. 529s are state-ran savings accounts for attending college only. There may be unique state benefits to using a 529, so you must check with your state programs.
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They can be very limiting in their use-case scenarios, so be careful before you lock your money into these accounts. I’d much rather utilize these other savings programs, but I can understand high-net-worth individuals using these to maximize benefits across the board.
My overall strategy. My wife and I are behind the power curve for our children. We didn’t get “the information” until we were 38 and 35, respectively.
I have roughly $800 in Series “I” Bonds for each kid, plus a custodial brokerage account with STASH (affiliate) for about $2,200 each. I mainly have index funds and some dividend stocks inside the brokerage.
We have plenty of time to prepare for our younger son; however, we have a couple of years for our older son.
My main concern will be getting him an HSA as soon as he turns 18. He may still qualify for my medical insurance, but an HSA is still beneficial.
How We Plan to Retire on Dividends 4
The power of compounding. Maxing out his HSA and Roth IRA will be my priority for the first few years after he turns 18.
If he can get $10,000 in each of these accounts, he is in a strong position for retirement and medical expenses.
HSAs are powerful because my son can use his account to support his dependents (people he claims on his taxes). So whatever he saves now can have heavy implications for his family later.
If you have a nice nest egg, you can convert your Series “I” Bonds to HSAs and Roth IRAs as your child turns 18.
Self-Storage vs. A Recession
Ideally, you will have a combination of savings bonds, HSAs, Roth IRAs, dividend stocks, and real estate to assist your child.
Is this too much help for your kids? Is providing all of this for your child overkill? Should they struggle on their own so they can truly appreciate these gifts?
Common wisdom says to kick your child out of the house at 18 and make them become an adult. Sure, but at what costs?
If you understand finances and get yourself ahead, what better “use case” than to fund your kid’s HSAs and Roth IRAs?
Bond Growth Investing: Bonds to the Rescue
After all, shouldn’t your child focus on becoming great adults, leaders, and parents? Do they need to become depressed under the weight of student loans, credit cards, and medical bills?
Conclusion. These are deeply personal questions—ones only you can answer. I can tell you my own experience.
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When I didn’t have “the information,” I wanted my kids out of the house. They needed to be strong and face the world alone (because I had nothing to offer them).
Now that I am wiser, I can see much more clearly. Their struggles will differ from mine, but they don’t need to center around money.
The more time I can free up for my kids, the better off they will be in the long run. We can use these financial tools together to build a wonderful life for all of us. Save (for) the children!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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