What’s the best way to start my kids’ retirement savings?



Q:  What is the best vehi­cle for saving/investing for my chil­dren that can be eas­ily trans­ferred to them?  My goal is to prime their own retire­ment sav­ings. Are there any options with tax ben­e­fits? I already have col­lege cov­ered, I am talk­ing about non-education. Thanks,
–Kris, California


A: Great idea Kris!  I love the con­cept of build­ing the retire­ment sav­ings habit in your kids at a young age.  Talk about a great gift!

Younger Chil­dren

For chil­dren too young to be in the work force, you have a cou­ple good strate­gies I’ll take a look at:


  • UGMA/UTMA (Uni­form Gift/Transfer to Minors Account) – These accounts offer some tax advan­tages but the money becomes the child’s at the age of major­ity – usu­ally 18 or 21 depend­ing on the State of res­i­dence when you set up the account.  Still, they can be a good way to get the child started if you are able to guide them once the funds become theirs.


  • Gift­ing Ear­marked Port­fo­lio – This strat­egy involves build­ing an invest­ment port­fo­lio in your name that you ear­mark for gift­ing to chil­dren in the future.  Essen­tially it is the same as any other invest­ment pro­gram you would run except that you would exclude it from your assets as you plan your future since you intend to give it away.  Under cur­rent law, you are able to gift $14,000 per year with­out gift tax con­se­quences.  Gift split with your spouse (if applic­a­ble) and you can dou­ble this amount to $28,000.  Since the account is set up in your name (or joint with your spouse), this option offers the flex­i­bil­ity of being able to change your mind about the pur­pose of the money.


  • Sav­ings bonds – I got them as a kid, maybe you did too?  Today the trea­sury offers I-Savings Bonds a safe invest­ment that can be set up in your child’s name, tax deferred and offers a return that is tied to infla­tion.  Visit trea​sur​di​rect​.gov to learn more.

Work­ing Teens

If you have teenagers that are earn­ing money and file a tax return (yes, you can file a return even if your only income is from babysit­ting and mow­ing lawns!), I like the idea of con­tribut­ing to Roth IRAs for them.  Under cur­rent law, what they earn and report up to a max­i­mum of $5,500 per year could be con­tributed to a Roth IRA.  The poten­tial for tax free with­drawals at retire­ment is pretty entic­ing with decades of com­pound returns on your child’s side.


No mat­ter what strat­egy you employ, I’m sure they’ll appre­ci­ate it…someday!



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Scott Halliwell and JJ Montanaro are CERTIFIED FINANCIAL PLANNER™ practitioners with USAA Financial Planning Services, one of the USAA family of companies. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and Certified Financial Planner™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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