04/12/2023
5 Ways To Jumpstart Kids Financial Future and maybe get some tax breaks too!
1. College Plan (529):
State specific tax advantages. Indiana for example gives a tax credit of 20% up to $1,000 maximum credit.
Has the benefit of tax-deferred growth.
As a result of the SECURE Act 2.0, requirements on using the funds have become more relaxed and can be used for primary school, secondary school, colleges, student loans, educational related expenses, vocational and trade schools.
2. Limited Pay Whole Life Insurance:
Cash Value & Death Benefit protection for life.
No premium payments after 10-20 years.
Has the benefit of tax-deferred growth.
Not included on FAFSA
3. Roth IRAs:
Create tax-free retirement savings by investing in their Roth IRA.
Requires your child to have 'Earned Income' up to the amount contributed.
Gains are taxed/penalized if withdrawn before the IRA owner reaches 59.5 years old.
Contributions can be withdrawn at any time without penalty or taxes.
2023 contribution limits are $6,500/year.
Has the benefit of tax-deferred growth.
NOTE: You can make a Roth IRA contribution for the previous tax year all the way up to the tax filing deadline, which is April 18th this year.
4. Health Savings Account:
Offering a triple tax advantage - tax-deduction, tax-deferred growth, and tax-free distributions if for applicable health expenses.
Can be used for any member of the family.
Eligibility requires a HDHP, and limits for 2023 are $3,850 self-only and $7,750 for family.
5. Tax-Advantaged Investment Account:
Non-retirement account that can be used for any purpose without restriction.
Does not have the benefit of tax-deferral, thus will incur capital gains and/or dividends tax annually.
Very important to have a 'tax-advantaged' management plan and investment strategy focused on reducing unnecessary taxes.
