Make Your Child a Tax-Free Millionaire

While many of us weren’t taught about money in school or at home, it is important for our children to have a head start in life by learning about personal finances from a young age. Building generational wealth is more than just the amount of money you leave your children and grandchildren to inherit. If your children lack financial knowledge, it won’t matter how much money they have because they won’t know how to manage it properly. Learning about money will help your child live a successful life, secure financial stability, and respect the value of money. We understand that teaching your children about money can be scary or complicated, especially if you are still learning about personal finances yourself. We had the opportunity to talk to Roslyn Banks, EA, about strategies for teaching children about money and helping them build wealth. Roslyn is an Enrolled Agent who offers financial and tax services through her company, Adelaide Rose. 

Roslyn: It is not too late to start today with whatever age your children are. These strategies will work for children of any age, and they don’t have to be your child necessarily. We know that grandparents like to spoil their children, and they want to leave that legacy and make an influence and relieve some of the financial strain off of parents, the same with aunts and uncles, godparents, and other relatives. 

“Starting children off on the right path means teaching them along the way; don’t let money be a secret in your household.” 

We have this unique opportunity now with tax credits where the government has expanded tax credits. With the new child tax credit and childcare tax credit, some taxpayers may have received advance payments from the IRS to help offset the expenses parents incur. This is money that can be used to implement the strategies of building wealth for your children. What’s great about this money is that the government gives it to you, and you don’t have to take it from your pocket. 

You’ve received child tax credits; now what? 

Many parents may be wondering, “I have received my child tax credit or my childcare tax credit. How can I utilize it for the benefit of my child if I want to build long-term wealth for them?” 

Roslyn: First, talk to a licensed professional that you know, like, and trust. You want someone that knows your family’s financial situation, tax bracket, and children’s age. This will allow you to benefit the most from their help. 

Another good option could be a Roth IRA, depending on what age the child is. If you start putting away money in a Roth IRA for your child when they first start working, it will grow over time. When your child meets the requirements for withdrawal, whether they are entering retirement or well into their 50s, that money will come out tax-free. 

We believe in the mindset that the earlier you start to invest, the longer you have to invest, and the more effective you are in building wealth. What are other long-term options for achieving the goal of building wealth for our child? 

Roslyn: A 529 Plan can be used to build and save for financial education expenses. The 529 Plan is an investment account that offers tax benefits to pay for qualified education expenses for a designated beneficiary. You can use a 529 plan to pay for K-12 expenses or tuition and college or student loan repayments.

“Money is a lifelong journey with children, and at every age, you should be explaining to them what their options are and what their long-term goals should be.” 

Savings accounts and Investing are also great options. Over the years, it has become easier to utilize these resources. Many savings accounts offer lower interest rates. A lot of the barriers that were in place have been removed. For example, with investing, you don’t have to have $3000 or $5000 to start an account. You can dip your toe into the market and experiment with the products you already buy and the brands you’re already familiar with.  

Broad games or books about money can appeal to children of all ages and help them learn more about money on a digestible level. 

“Be mindful of your own spending habits because they are watching what you do, what you purchase, and how you think about money.” 

We can’t thank Roslyn enough for her wonderful insight on the importance of teaching kids about money and strategies for getting started with those lessons. Never underestimate the power of talking to your children about money. This transfer of knowledge from generation to generation is essential for generational wealth.