How Do I Make My Kid Filthy Rich (Without Going Broke)?

0:00The best gift you can give your kid might not be a pile of money. It might be the option to take a breath, make a better decision, and not have to trade their values for the paycheck. And if that's not wealth, I genuinely don't know what is. Hello friends, this is Tyler Gardner welcoming you to another episode of your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing. So let's get started and get you one step closer to where you need to be. There's a strange moment in every parent's life when you realize your child has no concept of taxes, rent, or the tragic economics of buying popcorn at the movie theater.

0:52They believe money comes from thin air, or your phone, or, if they're slightly more financially literate, a small magical debit card named Mom. And yet, here you are, listening to a podcast episode titled, How to Make Your Kid Richer Than You Ever Were, which is very noble. Slightly masochistic, but very noble. Now, let me be clear. I'm not saying your nine-year-old needs a brokerage account, a Roth IRA, and a six-part estate plan by Labor Day. But I am saying that small steps now, boring, paperworky, barely even Instagrammable steps, can turn into serious wealth later. And I don't mean Lamborghini wealth.

1:43I mean choices, flexibility, the ability to take a sabbatical or turn down a job that requires a lanyard. In this episode, we're going to cover three surprisingly powerful tools. Number one, the custodial brokerage account, aka baby's first capital gains tax. Number two, the custodial Roth IRA, aka give your kid the superpower of tax-free growth before they even understand what a tax bracket is. And three, the 529 plan, aka college is coming and textbooks are not getting any cheaper. Each of these accounts has pros, cons, and most importantly, a couple landmines that we need to avoid. because yes, your child might one day thank you or they might use the money to invest in a llama-themed NFT.

2:41We can't control the future, but we can set it up better. Also, if this episode helps you or if you just want to support this show in the same way your child supports their Roblox addiction, please consider leaving a review on Apple Podcasts or share it with a friend who you think might learn something. It means the world to me, and it keeps this show going and building. All right, so let's make your kid rich, and ideally, still nice. Number one, let's start with the simplest and sneakiest of the bunch, the custodial brokerage account. This is the account you open for your child, but it legally belongs to your child.

3:28You, however, the benevolent parent that you are, get to make all the decisions up until they reach the age of majority, which is either 18 or 21, depending on your state of residence. At which point, they will gain full control, and you get to experience the unique joy of watching your thoughtful investments in Apple and index funds get cashed out for a Ford Bronco and a neck tattoo. Let me pause for a second, because this is the biggest hesitation I hear from parents. Namely, I don't want my kid getting access to that much money that early. And listen, I'm not here to judge your parenting, your teaching style, or your exact stance on when your child is allowed to date.

4:16But you're listening to an episode called How to Make your kid wealthier than you, not how to withhold all resources until they're 50 and still living at home learning Latin. One of the main reasons young adults struggle with money is simple. We don't talk to them about it. It should be a wake-up sign that you're more apt to talk to your kid about sex than money. Opening a custodial brokerage isn't just a financial move. It's a teaching mandate. You now have 18 to 21 years to make sure your child understands compound interest, delayed gratification, and what it means to steward wealth. And if they blow the money on something you wouldn't have chosen, well, that's the point.

5:02It's theirs, not yours. And naturally, this type of challenge to the custodial brokerage leads to most people's next question, which is why bother with a custodial brokerage versus just investing in your own account and giving them gifts later? Well, because this is one of the only ways to give your kids some pretty direct exposure to the markets without their needing earned income. That's right. No lemonade stand required. You can contribute birthday checks, tooth fairy proceeds, or even your own money. up to$19 ,000 per year in 2025 without triggering the gift tax. And yes, if grandma wants in, she gets her own$19 ,000 too to contribute.

5:48You can Voltron this thing into a serious nest egg very quickly. Then the money can be invested and grow in the market just like yours. You could buy ETFs, stocks, index funds, whatever suits your values and risk tolerance, or the values and risk tolerance that you agree on with your child as they grow and learn. And when your kid sells someday, they pay capital gains taxes based on their own tax bracket, not yours. And in 2025, the federal capital gains rate for someone earning under$48 ,350 is 0%. That's right. You might be handing your child the rarest substance in American finance, tax-free wealth, and they could use that money to supplement any lingering student debt or an apartment that doesn't rhyme with Dom's basement.

6:44Now for the cons. First, this isn't a retirement account. There's no tax deduction when you put the money in, and no protection from FAFSA. So if you're hoping this will boost your financial aid prospects, sorry, it won't. Custodial assets count against aid formulas more harshly than parental assets do. In 2025, they're assessed at 20 % for FAFSA, compared to only 5.64 % for parental holdings. Meaning, if your child has$10 ,000 in the account by the time they apply, $2 ,000 would be counted as custodial assets, versus if that$10 ,000 were in your brokerage account, only$564 would count as parental assets.

7:32That's a pretty big distinction. It's like the government somehow thinks an 18-year-old with$10 ,000 should fund their entire future with it. Doesn't make sense to me, but it's what it is. Second, as we've explored, the money is legally theirs when they hit the age of majority. You can't claw it back. There's no just kidding clause. So if you think your kid might have strong opinions at 18, say about Dogecoin or artisanal mushroom farms, maybe don't fund this with your retirement money. But again, do I really see this being an issue if you talk about money and investing early and often with your child?

8:13No, I don't. And I know plenty of people who have had very positive experiences helping their children learn about investing via these accounts. Finally, note that capital gains are still capital gains. If your kid's portfolio starts kicking off dividends or grows beyond the$48 ,350 tax bracket, they will owe taxes. Small, but worth planning for and worth discussing early who's going to pay those taxes, so neither of you end up with false expectations. But bluntly, pro tip, if you have your kid's money invested in dividend funds, sorry, you're a ding dong. They don't need$1.50 a year of dividends.

8:56They need tax-efficient long-term growth because they now have decades of compounding ahead of them. So stick them in a low-cost index fund that minimizes dividends and call it a day. For many families, the custodial brokerage is an elegant way to let your child grow up with a front row seat to real investing. They get to see how the market works, how compounding happens, how patience pays off, and ideally how not to YOLO their portfolio into meme stocks after high school graduation. My guideline is simple with kids and investing. Encourage them to buy stocks or funds where they can see, touch, or experience the actual company or underlying companies.

9:41Coke, McDonald's, Costco, anything that teaches them they actually own a piece of a company and they want to continue to see if they like that company and if it continues to do well. So custodial brokerage accounts, not perfect, but pretty powerful, especially if you're looking to teach your kid about real world investing before they inherit your Roth IRA and decide to become a surf instructor in Guam. Number two, the custodial Roth IRA, aka the single most misunderstood account by financial influences who are yelling at you to just pay your kid for taking pictures with you. Don't worry, I will address that comment head on in due time.

10:24The custodial Roth IRA is indeed the only retirement account that makes sense for someone who still believes in the tooth fairy. At first glance, this one might feel ridiculous. A retirement account for my child? That's like buying life insurance for my cat. But stick with me, because this is where the math starts to sound a little like witchcraft. A Roth IRA is one of the only ways to create truly tax-free growth for your child forever. In 2025, the annual contribution limit is$7 ,000. But, and here's what most people miss, your child must have earned income, real work, babysitting, tutoring, mowing lawns, and yes, even modeling for your friend's Etsy soap company can all count.

11:17But here's the catch. Before you put a dime ever into your child's Roth IRA, ask yourself if you would be able to document both the amount you paid and the work that was performed and then present that information to the IRS and feel ethically sound about both. If the answer is even somewhat no, you are at best misusing the account, and at worst, guilty of tax fraud and potential child labor issues. The work needs to be documented. It needs to be safe and age-appropriate. And what you pay them needs to be able to be compared to a type of fair market value. So sorry, no, you can't claim your child gets the same licensing fees as the Gerber baby and pay them$7 ,000 for a one-off Instagram photo with your small business.

12:15Unless, of course, your child is the Gerber baby. Then have at it. But when in doubt, can you justify the job, the wage, and the fact that this is indeed earned income? If you can't do it, don't risk it. So let's say we understand that part. We're following the rules, and your 15-year-old earns$3 ,000 this summer as a lifeguard. And you, wonderful parent that you are, let them spend their money on hoodies and smoothies, but contribute$3 ,000 of your own money on their behalf into their Roth IRA. That, my friends, is totally above board, totally legal, and totally brilliant. Why? Because that$3 ,000 invested at a 7 % real return for 50 years becomes over$88 ,000.

13:07And it's 100 % tax-free for them after 59 and a half. And that's just doing it for one summer with$3 ,000. Do that just a few times in their teens, and you're handing your kid a six-figure head start before they even rent their first terrible apartment with a broken stove and a pet ferret named Edgar. Now for the quick caveats, always caveats. One, it's less flexible than a custodial brokerage account. Unlike the custodial brokerage, Roth IRA contributions can't be withdrawn without consequences unless for specific things, like a first-time home purchase up to$10 ,000, qualified educational expenses, or retirement.

13:54So if your kid suddenly needs that money for something unexpected, yeah, they could take back the contributions, but the gains will be taxed, penalized, etc. Won't be fun, and it's not necessarily the ideal account if you're looking purely for flexibility. Number two, they can't contribute more than they earn. So if your kid made$2 ,000 last year, you can't stuff$7 ,000 into their Roth just to be nice. You're capped at$2 ,000. This account rewards industrious kids, not idle ones with parents who believe in creative accounting. And number three, you'll need to do a little record keeping. It doesn't have to be CPA level, but if they're working for a family business or freelancing, you'll want to keep receipts, logs, or bank deposits.

14:46You don't want to be explaining to the IRS how your 12-year-old earned$6 ,500 for mowing the lawn once. Still, the upside here is astonishing. We're talking about an account that turns summer job money into a retirement tailwind. And even if your kid doesn't touch it until they're 60, they'll thank you, most likely from a sailboat, while you're stuck on hold with Medicare. In summary, custodial Roths are for the long game. If your child has earned income and you have some room in your budget, this is one of the greatest financial gifts you can give them. It's not flashy. They hopefully won't see a dollar of it for decades, but someday they'll crack open that account to pay for a down payment on their off-grid moon yurt or whatever dystopian luxury living looks like in 2083 and quietly thank you between sips of recycled oat water.

15:40Finally, let's talk about the 529 plan, which, albeit sounds like a robot from Star Wars, but is, in fact, one of the most powerful and misunderstood financial tools ever created. It's a tax-advantaged investment account designed to help pay for education expenses. And if used correctly, it can do everything but make your kid actually do their homework. Don't worry, with the state of AI, there's not going to be homework in a couple years anyway. Here's how it works in 2025. You contribute money to a 529 plan. You then choose your investment. Usually, the plan will offer you a type of target date fund, kind of like your retirement plan, which just means the investments will get more conservative as your child gets closer to 18 years old.

16:27You, of course, can choose whatever works best for you. That money then grows tax-free, and if you use it on qualified educational expenses, like tuition, books, room and board, or even some K-12 and trade school costs, you never pay a dime in taxes on the growth. None. It's like the IRS gives you a high five and says, well done, scholar parent who actually planned for something 18 years in advance. But wait, it now does actually get better because little known fact, and yes, I appreciate most of us are not in this situation. But if you are, just know that you can actually super fund a 529 plant.

17:10This is a tax play and an investment strategy. As of 2025, each parent can contribute up to$95 ,000 at once. That's five years of$19 ,000 annual gifts per parent, per child, without triggering the gift tax. Now, you couldn't do this in back-to-back years, but the point is you would do this when your child was born, and hopefully that$190 ,000 might be enough to actually pay for your kid's college 18 years from now. But don't worry, even if that's way beyond your budget, it's okay. That's just an option, as contributing$100 a month from birth is still really powerful. With a 7 % annual return, you're looking at nearly$42 ,000 by the time they're 18.

18:00That's a semester of college, four semesters of ramen, and 300 textbooks they'll never open and sell back to the company for 1 500th the original price. And that will teach them plenty about economics and money in the real world. The key on this one is not amount, it's time. If you wait until the kid's 15, bluntly, I don't think it's worth it because three years is not really enough time to ride out potential market volatility and make any real gains. But an 18-year timeline is extraordinary, and if you're not doing this for your kids or grandkids, I'd encourage you to at least go learn more. Here are a few things to learn that some people don't know.

18:42Number one, you can get a state tax deduction. Some states offer state-level tax benefits for using your own states 529. Vermont, for example, my state, gives a 10 % credit on up to$5 ,000 per couple. Other states, not quite so generous. Some give you no tax break and a stern look. So before you pick a plan, check your state's policy, and then choose to ignore Gary from Facebook who insists his plan from Utah is the best because it has a nice website. Number two, big one, you can change the beneficiary. This is the secret very few people talk about. Your kid decides not to go to college and instead becomes a nomadic travel influencer.

19:27No problem. Well, maybe a problem, but no problem with the 529. You can make their sibling the new beneficiary or your niece or yourself. Yes, yourself. You want to take a tax-free pottery class at age 58? You could do that. Want to learn Italian in Florence while you build your personal brand on TikTok, that's a qualified expense for the class, not the TikTok branding. And number three, this is my personal favorite, you can roll over$35 ,000 to a Roth IRA. Thanks to Secure Act 2.0, unused 529 funds up to$35 ,000 can be rolled into a Roth IRA starting in 2024. And yes, that's active in 2025. Now, a couple rules here.

20:16The 529 must have been open for 15 years prior to the first rollover. Contributions to the 529 from the last five years don't count, so you can't just do it at the end and try to roll it over. And rollovers are subject to annual Roth contribution limits, as in you can't roll it all over at once. But the key here is this. Leftover college money can now become tax-free retirement money. And again, you can change the beneficiary, so technically you could roll it all into your Roth IRA, which makes this the only college savings plan that can moonlight as a retirement boost if junior gets a scholarship or skips school for startup life.

21:01So what's the takeaway? A 529 plan is no longer just about avoiding student debt. Though, to be clear, that's reason enough, as in 2025, the average student loan balance is still over$37 ,000. It's a multi-tool, and it's a way to invest now in your child's future freedom. Whether that's school, a second act, or someday their kid's education, yes, you can change beneficiaries to skip a generation, too. So if the Roth IRA is your kid's long game, and the custodial brokerage is the flexible middle ground, consider the 529 to be a targeted missile. Load it early, aim it wisely, and you might just hit the one thing most financial planning misses talking about entirely, an English literature degree for a quarter of a million dollars.

21:54I'm just kidding, obviously, even though that's what I've got. It gives you options. You will give them options, and those are priceless in any financial planning conversation. So there you have it. Three tools, one mission to help your kid become wealthier, more secure, and ideally just a little less likely to move back in with you at 34. The custodial brokerage is flexible, powerful, and perfect for teaching investing basics. Just make sure you hide the buy GameStop subreddit from them. The custodial Roth IRA, a great head start on retirement that compounds like a science experiment. One with tax advantages and no need to clean up after.

22:39Just make sure you remember the IRS doesn't have the same sense of humor you did when you paid your kid$5 ,000 to be your emotional support buddy over the holidays. And finally, the 529 plan, an educational jumpstart that doubles as a potential retirement backup plan. And yes, if college doesn't happen, you can reassign the funds to anyone, even yourself. It's basically the choose-your-own-adventure of financial tools. And the best part? None of these strategies require a trust fund or a Wall Street pedigree. Just intention, a little planning, and the willingness to think longer term than your kid's current obsession with iced matcha.

23:21Look, none of this is about making them rich just for the sake of it. It's about giving them the thing real wealth buys. Freedom and flexibility. The ability to choose their path without being shackled to student loans or the paycheck-to-paycheck panic. In a world that's constantly changing, the best gift you can give your kid might not be a pile of money. It might be the option to take a breath, make a better decision, and not have to trade their values for the paycheck. And if that's not wealth, I genuinely don't know what is. If you found this episode helpful, please consider sharing it with a friend or with your kid.

24:03And if you really want to support the show's growth, leave a quick review on Apple Podcasts. I read every single one, usually with coffee, sometimes with tears, depends on the day. Thanks for listening. I'll be back here with you next week. And until then, don't forget, if you want your kid to understand money and investing by 18, that begins with a basic conversation with you about money. Thanks for tuning in to your money guide on the side. If you enjoyed today's episode, be sure to visit my website at tylergardner.com for even more helpful resources and insights. And if you're interested in receiving some quick and actionable guidance each week, don't forget to sign up for my weekly newsletter where each Sunday I share three actionable financial ideas to help you take control of your money and investments.

24:53You can find the signup link on my website, tylergardner.com, or on any of my socials at Social Cap Official. Until next time, I'm Tyler Gardner, your money guide on the side, and I truly hope this episode got you one step closer to where you need to be.