How to Make Your Kids Millionaires

Building wealth for your children isn't just about what you leave them in your will—it's about the financial foundation you help them establish from an early age. In this episode, we explored how parents can set their children on the path to becoming millionaires through consistent, strategic investing from a young age. This approach doesn't require massive contributions, just consistency and understanding the power of compound interest over time.

The concept is simple yet profound: time is the most powerful advantage when it comes to investing. Albert Einstein allegedly called compound interest the eighth wonder of the world, and for good reason. When you start investing for your child from birth, even small monthly contributions can grow to substantial sums by retirement age. Consider this eye-opening example we discussed: contributing just $100 monthly to your child's investment account from birth until age 18 (totaling $21,600 in contributions) could grow to over $1.1 million by the time they reach age 60, assuming an 8% average annual return. That's the miracle of compound interest working over decades.

Parents have several excellent account options to build wealth for their children. The 529 plan is specifically designed for educational expenses, allowing tax-free growth and withdrawals for qualified expenses. Recent legislative updates have made these accounts even more flexible, with the ability to roll over up to $35,000 into a Roth IRA if the funds aren't needed for education. This adaptability addresses a common concern parents have about what happens if their child doesn't attend college or receives scholarships—the money won't go to waste.

Custodial brokerage accounts, specifically Uniform Transfers to Minors Act (UTMA) accounts, offer another excellent way to build wealth for your children. These accounts allow you to invest on behalf of your child until they reach adulthood (18 or 21 depending on state laws). While the account transfers to the child's control at that age, the growth potential remains significant. We emphasized the importance of financial education throughout childhood so they understand the value of continuing to invest rather than withdrawing funds when they gain control.

Custodial Roth IRAs present perhaps the most powerful opportunity for children who have earned income. Whether from babysitting, mowing lawns, or working a part-time job, children with earned income can contribute to these tax-advantaged accounts, potentially setting themselves up for tax-free withdrawals decades later. For business-owning parents, there's an additional strategy: legally employing your children in appropriate roles allows you to pay them up to $15,000 annually (in 2025) without them owing income tax, while providing a business deduction for you—essentially creating tax-free investment contributions.

Beyond account selection, we stressed the importance of automation and proper investment selection. Setting up automatic monthly contributions removes the friction that often prevents consistent investing. We recommend using mutual funds rather than ETFs for these automated contributions, as mutual funds allow for fractional share purchases, ensuring every dollar gets invested immediately rather than sitting as cash waiting to accumulate enough for a full ETF share.

Perhaps most importantly, we emphasized that introducing financial literacy early gives children knowledge their parents often didn't have. By involving them in understanding their accounts as they grow, showing them the power of compound interest, and teaching them the principles of long-term investing, parents can ensure that this wealth-building opportunity extends beyond just money—it becomes a foundation of financial knowledge that can benefit them throughout their lives.