3 Ways to Make Your Kid a Millionaire on a Budget

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Did you know you can give your child future financial security by starting now? Find out how to pave their way to success. [[{“value”:”

Creating a future where your child can attain millionaire status doesn’t necessarily mean you need to be exceptionally wealthy from the start. In fact, with some savvy financial strategies and proactive planning, you can lay a solid foundation for your child’s prosperous future (something I’m hoping to do for my 5-year-old son). You just need to utilize the right financial tools and opportunities that are often overlooked or underutilized.

Here are three key ways to set your kid up to be a millionaire with just a few dollars a day.

1. Employ your child

If you’re a business owner, a smart strategy to boost your child’s financial future is to employ them in your business. Picture them as a model for your advertisements, for instance. This move is smart, not just because they’re your child, but because it makes financial sense, too.

Here’s the cool part: When you hire your child, you get to cut down on your business taxes. It’s like the government patting you on the back for being a savvy parent–business owner. And for your kid? They can earn up to $13,850 a year without paying a dime in taxes. That’s a lot of money for someone who’s still in school. And if you take the following steps to invest it strategically, your child will be well on their way to being a millionaire.

2. Invest in a custodial Roth IRA

Now, let’s put $6,500 of that $13,850 into a custodial Roth IRA account. A custodial Roth IRA offers an excellent avenue for long-term savings for your child, especially if they have earned income. This can be through various means, such as modeling or working for your business. The Roth IRA is particularly advantageous due to its tax structure. Contributions are made with after-tax dollars, but the earnings and withdrawals during retirement are tax-free.

The power of this approach lies in the magic of compound interest. For example, if you contributed the 2023 maximum amount of $6,500 annually to your child’s Roth IRA, with an assumed 7% annual return, the investment can grow substantially. An initial investment of $117,000 over 18 years can balloon to nearly $221,000 by the time your child turns 18. If these funds are left untouched until retirement, the amount could potentially grow to around $5 million, demonstrating the profound impact of early and consistent investing.

Another bonus is that your child can withdraw up to $10,000 from the account penalty-free to help buy their first home.

3. Utilize a UTMA account

A UTMA account is another flexible tool for investing in your child’s future. This account allows you to gift your child various assets, such as money, real estate, or fine art, without needing a guardian or trustee. One of the key advantages of a UTMA account is its favorable tax treatment. The first $1,250 of the child’s unearned income from the account is tax-free, and the next $1,250 is taxed at the child’s lower tax rate.

Starting with a modest annual contribution, say $1,000 of that $7,350 left over after contributing to the Roth IRA, and assuming a 7% annual growth, the investment in a UTMA account can grow significantly over the years. By the time your child reaches 18, this investment could be around $34,000. If left to grow until age 65, the total could surpass $800,000. However, it’s important to be aware of the potential tax implications and the effect on college financial aid, as the money in a UTMA account is considered the child’s asset.

How else can you set your child up for success?

Using these money moves — hiring your kiddo, saving in a Roth IRA, and stashing cash in a UTMA — isn’t just a set-it-and-forget-it kind of deal. You’ve got to get the hang of the little details and how taxes play into this. Starting early is key, and keeping up with regular contributions is like putting fuel in the tank. And where do you put your money? That’s important, too — you want to be smart about it.

It’s highly advisable to seek guidance from a financial advisor or tax professional. They can provide personalized advice, ensuring these strategies are optimally tailored to your circumstances. Additionally, they’ll keep you informed about any changes in tax laws or contribution limits, which is crucial for staying on track.

If you play your cards right with these methods, you’re not just saving up some money for your kid. You’re setting them up on an exciting road to becoming a millionaire.

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