You may already know how powerful compounding can be and you may have wished you started investing when you were much, much younger.  You can’t go back, but you can certainly set your children up to reap the benefits of an early start.

 Generally, there are 3 accounts that can be opened for your kids:

1. Roth IRA – only available to people who have some sort of earned income.  Some examples include child actors, magazine and product models, or children that are employed by their entrepreneur parents.  I know people that pay their kids to help maintain their AirBnBs, and that’s how they’re able to have a Roth IRA.
   
   Most children will not qualify for a Roth IRA, so let’s move on to the other, more common accounts for minors.
   
2. 529 plan – this is a tax-advantaged account you can use to save for college.  Like a Roth IRA, the contributions are after-tax, and the money grows tax-free, and as long as you use it for education purposes, the money is not subject to federal income tax when you withdraw.  
   If they don’t end up going to college, not to worry:- A 529 account can be passed onto any other family member – As of 2024, you can now roll up to $35,000 of unused funds to a Roth IRA.
3. UTMA (Uniform Transfers to Minors Act) – this is a taxable brokerage account.  It is a custodial account, meaning it belongs to the child, but you would manage it for them until they become an adult (18-25 years old, depending on state).  There is no limit to the amount of money that can be gifted to this account, but individuals are limited to $18,000 a year per person.  So a mother and father could put a total of $36,000 into their child’s UTMA in 2024. Read more: Uniform Transfers to Minors Act (UTMA): What It Is and How It Works (investopedia.com)

Your kid may not have any money to invest, but that doesn’t mean you can’t open an account and invest for them.  They could be retired by 25.

But even more important than money that you can contribute to your children’s retirement is the example that you set by saving for your own retirement and living within your means.  Teach them to appreciate what they have and temper their desires for luxury goods.  Show them that experiences, not stuff, will make them happy.  Teach them to be generous and help others and society.  The education you pass onto your kids is far more valuable than the dollars, but a financial head-start is always good.