How to invest the child tax credit for your children’s retirement

  • If you don’t need the money now, investing in the child tax credit might be a good idea.
  • Money could grow over time if it is invested in an investment deposit account.
  • Investing the money in your child’s education now could also help them save and earn later.
  • Read more about Personal Finance Insider Coverage »

Child Tax Credit deposits began hitting the bank accounts of U.S. families on July 15. This advance tax credit provides eligible families with cash payments of $ 300 for each child under 6 and $ 250 for each child between 6 and 17.

The payments will be issued for six months, until December 2021. While this money is incredibly useful for anyone in need of cash, it can also be a great tool for those who want to help their children build wealth in their life. long term and start saving. for retirement as soon as possible.

Investing the extra money for your children’s future might be a smart move, says Kevin L. Matthews, former financial advisor and investment expert at Building Bread. “I think years from now this will be one of the best decisions parents can make right now,” he told Insider.

Investing is just a smart idea for families who have their needs met and a full emergency fund, he said. But, for those in a position to invest it, there are two main ways Matthews suggested to help kids build wealth that will last until they need it.

1. Invest in the stock market for decades of compound interest

Matthews says one of the best ways to help that free money grow is to invest it in the stock market, where the money will take years to grow with compound interest. To make sure your kids can access it easily, Matthews recommends using an investment deposit account.

“You can use it for almost anything. When the kid turns 18 or 21 in some states, that money becomes theirs,” he said. Then they can keep it and allow it to continue composing until they retire.

While retirement accounts are generally great for building long-term wealth, they won’t work in this situation, Matthews says. “You don’t want to put this in an individual retirement account, a [traditional] IRA or Roth IRA. The reason is that it must be earned income. They have to have a job to invest in it, ”he said.

Placing money in an investment deposit account is the best way to profit from

compound interest
, and let the money grow over the years.

2. Invest It Directly In Your Kids To Reduce Their Student Loan Debt And Increase Their Savings Potential Later

While this is a less straightforward approach, Matthews says spending money on your children’s education is another way to help them benefit later.

Many young adults struggle to pay off college debt, often at the expense of saving for retirement in years when it can have the most impact. Spending money on their education now or saving for their post-secondary education could help them earn more scholarships, spend less on college, and ultimately invest more for their retirement later.

“It’s time to pay for extra coursework for ACTs or something. That’s a good way to say, ‘If I take this test now, I’ll get a higher score, higher scholarships, and less. student loan debt, ‘”Matthews said.” This is an opportunity to look at some of these things, whether it’s new equipment, a better tutor, more books. preparation for the tests. “

Putting the child tax credit money into a 529 education savings plan is another option. This money will increase as your child completes Kindergarten to Grade 12 and provide funding to pay for their post-secondary education. More funding for college or trades means less student loans, which can lead to more money saved for retirement.

While this approach isn’t as guaranteed as traditional investing, it might be a good idea to help your child get ahead sooner.

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