If you have a 15 year old and you let that child buy $200 worth of stocks this year, by the time that child turns 65, that $200 could grow to about $9,400, assuming your child’s portfolio enjoys an average annual 8% return. That return is a few percentage points below the stock market’s average.
An even better thing to do for your kids is to open a custodial brokerage account that you manage, and allow them to choose some stocks for their personal portfolios. Your kids may be drawn to companies they know well, or they may be open to learning more about companies they’re less familiar with.
The cost of higher education only seems to be going up. A good way to help your children pay for it is to open 529 plans in their names.
2. Open a 529 plan
Say you have two children and each winds up with $100,000 in a 529 plan by the time college arrives. If one child gets a scholarship so that they don’t need that entire $100,000, the remainder can be given to your other child without penalty.
With a 529, investment gains and withdrawals can be taken tax-free, provided they’re used for qualified education expenses. And these plans are very flexible in that you’re allowed to switch beneficiaries, as needed.