Guide Your Children Toward Financial Success with These 7 Key Investments
In the realm of financial planning, parents are increasingly looking beyond traditional savings accounts to secure their children's futures. Three key tools are gaining popularity: 529 plans for education savings, Roth IRAs for long-term retirement savings, and ABLE accounts for children with disabilities.
529 plans are primarily used to save for educational expenses, including college, trade schools, certain apprenticeships, and even K-12 tuition under recent laws. They offer tax-free growth and tax-free qualified withdrawals. Parents can also "superfund" these plans by contributing up to five years' worth of gifts without gift tax consequences, which helps reduce their taxable estate while retaining control over the funds.
Roth IRAs can be opened in a child's name once they start earning income from jobs like babysitting or lawn mowing. Contributions are made with after-tax dollars, enabling tax-free withdrawals in retirement. Importantly, contributions (but not earnings) can be withdrawn at any time without penalty, providing flexibility as the child grows.
ABLE accounts are specialized tax-advantaged savings accounts for individuals with disabilities. Funds in ABLE accounts can be used for qualified disability-related expenses without jeopardizing eligibility for government benefits. Some 529 funds can be rolled into ABLE accounts under current tax provisions to further support children with special needs.
Parents also prioritise early financial education, teaching children budgeting, saving, and spending habits from a young age. Methods such as allowances tied to chores, guided use of spending and saving jars, and reviewing custodial accounts help children develop responsible money habits.
In the near future, the introduction of the "Trump account" for children is set to offer another savings option. Starting in July 2026, parents and employers can begin making contributions to a Trump account, with limits of $5,000 per year from individuals and $2,500 from employers until the child turns 18. However, important account details, such as how to access or manage funds, remain unclear as of early August 2025.
Ultimately, parents strategically blend these financial tools to cover educational costs and lower estate taxes, build a retirement nest egg starting from the child’s early earnings, and support special needs children, while fostering financial literacy skills throughout childhood for comprehensive long-term benefits. The accounts you open for your kids and the habits and mindset you help them build matter more than any specific account. Start small, stay consistent, and give your kids the tools to make smart financial decisions for life.
By utilizing 529 plans for education savings, Roth IRAs for long-term retirement savings, and ABLE accounts for children with disabilities, parents are not only securing their children's futures but also leveraging these tools to foster financial literacy skills from an early age. Their focus extends beyond traditional savings accounts and encompasses personal-finance education and self-development as they instill budgeting, saving, and spending habits in their children.
In the forthcoming landscape, the introduction of the "Trump account" is set to provide another savings option, offering an avenue for parents and employers to contribute towards a child's financial future, further expanding their arsenal of financial planning strategies for the long-term benefits of their children's personal finance.
