ST. PETE BEACH, Fla. — As people from all over the world continue to give their thoughts about the Harry and Meagan interview, one of the reoccurring conversations on social media is the Duke of Sussex's rainy-day fund.
Granted, not every parent has access to royal money they can set aside for their children. But there are ways parents can give their children a head start to generational wealth.
Personal finance experts say there are several ways parents can give their children a head start without breaking the bank.
Justin Chidester, a certified financial planner (CFP ®) and an accredited financial counselor (AFC ®), said besides a basic savings account, parents should also consider opening a 529 plan for higher education expenses or a Roth IRA.
What is a Roth IRA?
The Roth IRA, or the Roth individual retirement account, is designed to help people get a head start to save for their golden years.
Investopida.com explains Roth IRAs are funded with "after-tax dollars" which "are not tax-deductible."
Examples of after-tax dollars include spouse IRA contributions, transfers, and rollover contributions.
Chidester recommends parents help their child set up a Roth IRA once they are of working age.
"It's easier for business owner families to do this because they can actually just give their kid a job as an employee and get them some earned income," said Chidester.
"The beauty of using a Roth IRA is you're not only having them save and invest for their future because you're teaching them about money."
What is a 529 plan?
The Security and Exchange Commission describes a 529 plan as a tax-advantaged savings plan specifically for future education costs.
There are two types of 529 plans: prepaid tuition and education savings plans.
The SEC's website, sec.gov, provides detailed information about each plan, including fees, restrictions, and the difference between prepaid tuition plans and education savings plans.
"The biggest risk is you just don't want to overfund [the 529] accounts," said Chidester.
"You don't want to overfunded because what if your child gets a scholarship or that pays for school. The 529 is restricted money. If it's used on anything else, it does get taxed and penalized on its way out. So, don't overfund," he advised.
Chidester said if a child decides not to pursue a higher education or money left over in the 529, parents can change the beneficiary on the account.
Other rainy-day options
In addition to 529 plans and Roth IRAs, loved ones can help the newest family members save by gifting them with stocks or savings bonds.
A savings bond acts as a loan to the U.S. government, which earns interest for up to 30 years. After 12 months, the savings bond can be cashed-in for face value, plus interest. If it's cashed-in before the savings bond is five years old, the last three months of interest will not be included.
Savings bonds are available to purchase online through TreasuryDirect.gov. Series EE and Series I savings bonds are available between $25 to $10,000.
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