How to save for a child’s future home

1052. Thinking about helping your kids buy a home decades from now? Host Laura Adams answers a listener’s question about the best ways to grow savings. You’ll learn how inflation impacts long-term savings and which growth-oriented accounts offer the best return for long-term goals.

Key Takeaways:

• For long-term goals, low-yield options like CDs carry risk due to inflation. Broad-market index funds (like an S&P 500 fund) offer higher returns that can keep pace with inflation.
• Opening a standard brokerage account in the parent's name allows money to grow in low-cost index funds without contribution caps or early withdrawal penalties. Parents are in complete control of when, how, or if the money is gifted.
• UGMA or UTMA accounts allow parents to invest on a child’s behalf, and ownership legally transfers to the child when they reach adulthood.
• Families with children under 18 can utilize Trump Accounts, which allow up to $5,000 in annual tax-deferred contributions. Plus, those born from 2025 to 2028 are eligible for a $1,000 federal deposit. 
• After age 18, a child’s Trump Account converts to a traditional IRA. It can be converted into a Roth IRA by paying taxes on account earnings, which then allows more options for penalty-free withdrawals.
• Once a child has earned income, parents can match their earnings in a Roth IRA up to the annual limit ($7,500 in 2026). Contributions can be withdrawn anytime tax- and penalty-free for any use. 
• After five years of account ownership, a Roth IRA allows up to $10,000 of earnings to be used penalty-free (but not tax-free) for a qualified first-time home purchase.

Discover more from Money Girl!

Facebook

Newsletter

Transcripts available at QuickandDirtyTips.com.

Email: [email protected] or leave a voicemail: (302) 364-0308.

Hosted on Acast. See acast.com/privacy for more information.