This holiday season, if you have the means, it might be a good idea to give kids something more lasting than toys. Kids love toys, yes. But if anything, this pandemic has taught us that the big picture is always worth keeping in mind. Here are some financial gifts that will positively impact kids for years to come.
A 529 Plan
Help your kid — or a loved one’s kid — fund their education by opening a 529 plan or contributing to one. The money deposited into a 529 plan grows tax-free and can be used for education-related expenses — from college tuition, to a computer, to room and board. The earlier you start funding this account, the easier your kids’ life will be when they head off to college. If your kid ends up not attending college, you can change the plan’s beneficiary. And, if you’re the account owner you may even get a state tax deduction for making the contribution.
A good financial gift for graduating high schoolers is a session with a financial planner. Yes, you’ve hammered home solid financial advice for years, but hearing it from a professional might make it sink in more. A financial planner can reiterate all the things you’ve been saying for years — how vital it is to have a budget, how to handle debt, the importance of a good credit score and more, all before they head off to college or into the working world.
A Roth IRA
If your kids are working, help them open a Roth IRA. As US News notes, this account is a great way to boost savings as the years go by. Your kid can contribute an amount equivalent to their earnings up to a certain amount each year ($6,000 for 2020), and those funds grow tax-free. (Some parents allow their kids to keep a portion of their income and make the contribution themselves.) Your kid can also withdraw contributions tax-free, without penalties, at any time they like. If your kid holds on to the account until close to retirement, they can withdraw the earnings tax-free after age 59.5.