How to Make Your Child a Millionaire (Part 1): The Power of Starting Early

Most parents want to give their child every advantage in life—but what if one of the most powerful gifts you could give them isn’t something flashy or complicated? What if you could give them financial freedom, flexibility, and a massive head start on wealth building with a simple monthly habit?

That’s the power of starting early when it comes to investing. Whether it's a taxable brokerage account, a custodial Roth IRA, or even a 529 plan, time and compound interest are your best friends. Let’s break down how it works, what the rules are, and what a little consistency can turn into over time.

The Basic Concept: Start Early + Let It Compound

Let’s say you invest $500 a month for your child from birth until age 18. That’s a total of $108,000 in contributions.

Assuming a long-term average return of 8% per year—roughly the historical return of the S&P 500—here’s how that money could grow over time if left untouched:

• By age 30: The account could grow to approximately $261,741

• By age 40: Around $567,982

• By age 50: Roughly $1.23 million

• By age 60: Close to $2.67 million

And all of that was made possible without adding another dime after they turn 18. This is the magic of compounding—your money earns money, and then those earnings earn more.

Choosing the Right Account Type

Now that you see the potential, let’s talk about where to invest the money. Different account types have different rules, tax benefits, and limitations.

1. Custodial Brokerage Account (UGMA/UTMA)

• Anyone can contribute.

• No tax advantages, but full flexibility—use for anything from a down payment to starting a business.

• Investment gains are taxed under the “kiddie tax” rules: a portion may be tax-free, some taxed at the child’s rate, and some at the parents’ rate if gains are high.

• The child gains full control at the “age of majority” (usually 18 or 21, depending on your state), which is an important consideration.

Why it’s great: Simple, flexible, and easy to start. Good for parents who want to give their child a financial head start without locking the money into education-only use.

2. Custodial Roth IRA

• To use a Roth IRA for a child, they must have earned income (e.g., from a part-time job or family business).

• Annual contribution limit is $7,000 in 2024, or the amount of earned income—whichever is lower.

• Contributions are made with after-tax dollars and can be withdrawn at any time, penalty-free.

• Investment growth is tax-free and can be withdrawn at age 59½ with no taxes or penalties, as long as the account has been open for at least 5 years.

Why it’s powerful: The Roth IRA is one of the most tax-advantaged accounts available. When you start young, even modest contributions can turn into a tax-free fortune.

3. 529 College Savings Plan

• Grows tax-free when used for qualified education expenses (college, trade school, and even up to $10,000/year of K-12 tuition).

• Contributions may be eligible for state tax deductions, depending on your state.

• Funds used for non-qualified expenses are subject to income tax and a 10% penalty on earnings.

Thanks to recent legislative updates (as part of the SECURE Act 2.0), 529 plans are now more flexible than ever:

1. Roll Unused 529 Funds into a Roth IRA

Starting in 2024, you can roll over up to $35,000 from a 529 plan into a Roth IRA for the beneficiary—tax- and penalty-free—if certain conditions are met.

This gives families a powerful exit strategy if education costs are overestimated or the child doesn’t use all the funds.

2. Transfer to Another Beneficiary

If one child doesn’t need the funds, you can change the beneficiary to a sibling, cousin, or even yourself—without taxes or penalties. This keeps the money in the family and preserves its tax-advantaged status.

Why it’s helpful: If your main goal is to save for college, this is the most tax-efficient vehicle.

But What If You’re Not Sure About Their Future Plans?

This is where strategy comes into play. You don’t have to pick just one type of account. Many parents use a mix—funding a 529 for education, a Roth IRA if the child has earned income, and a custodial brokerage for general-purpose investing.

If you’re unsure about how the child will use the funds (college vs. starting a business vs. down payment), consider prioritizing flexibility through a brokerage account or even a parent-owned investment account earmarked for the child.

Small Actions, Massive Impact

Most people drastically underestimate what small, consistent contributions can do when paired with time. Whether your goal is to help your child graduate debt-free, buy their first home, or retire decades ahead of schedule, the seeds you plant today can grow into a life-changing forest of opportunity.

Final Thought

You don’t need to be a millionaire to raise one. You just need to understand the value of time, consistency, and smart financial choices. Whether you’re opening an account this year or just starting to plan, this is one of the most powerful financial gifts you can give your child: a head start. At WealthBound, we pride ourselves on helping families create lasting impact and legacy, schedule a free consultation here

Disclaimer: This blog is for educational purposes only and does not constitute financial advice. Please consult with your advisor, tax professional, or mortgage lender before making a major purchase decision.