Start Planning for Your Child’s Future Today
Feb 12, 2015
Looking for ways to help your children save for the future? There are several ways to do this, which will not only give them the beginnings of a good future, but also reduce your own taxes!
Employ your child Have some light work around your business that needs to be done? Know someone that’s looking for a little help? Think of your child! This is a win-win situation because the business gets a deduction for the wages paid and depending on the salary, your child will pay little to nothing in taxes on that income!
Start a Roth IRA Roth IRAs are special because they take post-tax dollars, allow you to save and invest, and then pull the money out at some point in the future, tax-free. Any investment advisor will tell you that time is your friend and that it’s important to save early. And while this is true, there are also other advantages to starting to save early. When you start a Roth for your child, you are able to take advantage of their extremely low effective tax rates and save those post-tax dollars on which they are paying essentially nothing in tax. In the example of employing your child, doing this and starting a Roth is incredible because the wages that they are being paid are not only (essentially) tax-free when they are earned but they and all their future earnings are sheltered from tax inside of the Roth. With several decades of compound interest, this adds up the thousands upon thousands of dollars in tax savings.
Contribute to a 529 Plan Most states now offer 529 college savings plans. This is a great college savings tool because many states allow you to deduct a portion of your contributions to these accounts from your taxable income. In addition, as long as the money is used for qualified college expenses, all the earnings are tax-free when withdrawn.
Courtney Elgin, CPA