10 Ways the Average American Can Pass More Wealth to Their Kids

As parents, we all want to set our kids up for success, especially when it comes to finances. Despite popular belief, you don’t have to be a millionaire to pass wealth on to your kids.

These money moves work for almost any family. Managing your money wisely now and taking advantage of certain investment vehicles can have a big impact on your family.

Here are 10 ways an average American like you can pass more wealth to their kids.

Investment accounts often come with fees. You may be charged ongoing fees for maintaining your account or transaction fees every time you buy, sell, or trade investments.

Fees may vary depending on your account manager, but even a fraction of a percentage can add up over time and significantly reduce your earnings.

Not all debt is bad. Debt like student loans, mortgages, and business loans may qualify for tax deductions. The interest you pay may be deductible on taxes and can reduce your tax liability.

The debt to avoid is carrying balances on credit cards, where the interest you pay is higher than most loans. If you’re paying 20% interest on a credit card balance, think of it as paying 20% more for those things you bought.

Gifting money directly is an easy way to pass your money on to your kids. Per the IRS, you can give up to $18,000 per person or $36,000 per married couple with no tax implications to each of your children.

You can give your kids more per year, but you’ll be subject to paying the gift tax on the surplus.

Taxes can take a big bite out of your income and wealth. While building your wealth, take advantage of tax-deferred accounts like a 401(k), health savings account, IRA, or 529 plan.

If you qualify for a Roth IRA, consider paying the taxes now and investing your retirement savings in a Roth. The withdrawals will be tax-free when you’re retired.

By prioritizing these accounts, you can maximize your tax savings and keep more money in your pockets.

Parents can contribute money for a down payment on a child’s home. Lenders do not limit the amount that can be gifted. However, if the gift exceeds the annual gift tax exclusion, there may be tax implications.

The buyer will need to provide a gift letter to the lender stating how much they’re receiving and their relationship to the person giving the gift. The letter should also assure the lender that the money does not have to be paid back.

A trust is a legal entity that allows your kids to inherit your estate directly without going through probate. It can save your heirs time and money.

Trusts also protect your assets from creditors, divorces, and lawsuits — ensuring your beneficiaries receive their inheritance.

A 529 account is an investment account specifically for education expenses for your dependents. Unlike other investment accounts, limits are set not by the IRS but by the state where the 529 is offered.

Thanks to recent IRS changes, if you don’t use all the funds for education expenses, you can now roll over up to $35,000 into a Roth IRA. The account has to be in the dependent’s name.

If you are looking to pass cash or other assets to your minor children, a UGMA account offers flexibility and asset protection.

The assets in this account automatically become the beneficiary's property, allowing a parent to bypass trusts or wills to bequeath assets.

This account has no contribution limits and no withdrawal limits or restrictions. However, these accounts are still subject to IRS gift tax limits.

Both whole life and term life insurance policies allow your children to receive money when you die. They may use some funds to pay for any final expenses, but the rest they can use as desired.

Life insurance is generally not taxed as income, which enables your kids to receive inheritance without paying big chunks in taxes.

Once you stop working, you’ll be pulling from your retirement and savings accounts to maintain your lifestyle, reducing your net worth and assets.

Passive income streams are meant to keep bringing in cash even when you’re not actively working. Opportunities like real estate investing can provide additional income even after retirement.

During your working life, you are concentrating on building wealth for your family. The key to maximizing your wealth transfer is to plan ahead. Talk with your kids about your plans.

Wealth isn’t just about receiving money, it’s about managing money responsibly. Discussing your strategy with your children can help teach them about preserving your legacy and passing wealth for generations to come.