How to Invest in Your Child's Future

Parents have a huge financial burden these days when it comes time for their children to go onto higher education. Unless you are proactive in saving and investing, you may find yourself unprepared for the high cost of college tuition. Start early in planning for your child's future, and make regular contributions to the accounts you set up. In particular, investigate tax-exempt options.

Instructions

    • 1

      Open savings accounts when the children are young to prepare for their future. An account with interest that is compounded monthly is one way to save. Compounding is when the interest earned is combined with the principal, or original investment, and continues accruing interest from that point on.

    • 2

      Give tax-free gifts for their future. One way to leave money as an inheritance to your children is by using the gift-tax exemption. You can gift up to $1 million to a single person without anyone ever having to pay taxes on these gifts. By giving tax-free gifts, it lessens your own estate taxes, which will also help them.

    • 3

      Buy a certificate of deposit, commonly called CDs. When people call them money in the bank, they are exactly right. They are time deposits with a fixed interest rate that are required to be held for certain periods of time until they can be withdrawn. At maturity they can be withdrawn, along with the accrued interest. They can also be rolled over again and again, making you more money.

    • 4

      Use the Rule of 72 to double your investment. This rule can work for you when you put money into a savings account with compound interest. If you divide 72 by the interest rate, the answer would be how many years that it will take for your money to double. For example, suppose your interest rate is 9 percent. You would simply take 72 divided by nine to come up with eight being the number of years it will take for your money to double.

    • 5

      Save with a 529 fund. This is a specifically designed college savings plan, authorized by the Internal Revenue Service, to let parents save for college without having to pay state or federal taxes on the gifts. This is a way to save and be assured that the money will be used for your children's college education.

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