Crypto News: Tips for building your child's wealth

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They say it's never too early to start saving for retirement. How about birth?

Take a parent who invests $7,000 in the stock market for a baby born today. Assuming a standard 7% rate of return and no or very low management fees, that initial investment would be worth well over $569,000 by the time the child hits retirement age at 65 without anyone making a single additional contribution.

The power time brings to a portfolio is one of the reasons I felt this query from a subscriber a few days ago was so compelling:

Interested to hear your take on custodial Roths. My daughter is 11 and I'm thinking about opening one for her. Are there better tools to start her on building wealth for her financial future?

The reader added that her daughter already has a 529 college-savings plan that is on track and wondered if a retirement account might also help teach her about finance.

Minors can have a few different kinds of retirement accounts, and custodial Roth IRAs are a popular option. Parents can't just make a contribution like an allowance or gift. The money must be the child's earned income from a job like babysitting, tutoring or even social media work. However, contributions grow tax free and withdrawals in retirement aren't taxed.

Sounds pretty good, right? Tax-free growth that has decades to compound? But are such accounts right for our subscriber? Are they right for the children in your life? I interviewed four financial advisers across the US, and here's what I found out:

Consider custodial Roths as just one part of an account mix

The most helpful thing I heard this week was that your child could benefit from not one, but multiple investment accounts. Custodial Roths may be a good fit for children who have jobs — but not for those who are still too young for employment. This makes it seem unlikely but not impossible our reader's 11 year old could benefit from a custodial Roth. However, several financial advisers I spoke with talked about parents with their own businesses who are able to pay their children for legitimate work, such as modeling, sometimes starting in infancy.

"Just like you diversify your portfolio, you also want to diversify your vehicles," Alvina Lo, chief wealth strategist at Wilmington Trust in New York, told me. Lo, herself, recently opened a custodial Roth for her 16-year-old son after he got a job working at a concession stand at a local pool. But she recommends people think holistically about the tax benefits they're getting from all of their family's account types.

What else is out there?

Our subscriber mentioned she has a 529 plan, but they are worth mentioning for all of our readers because they offer similar advantages to a custodial Roth without the earned income requirement. In many states, investors who make use of 529 plans get state income-tax deductions, tax-deferred growth and tax-free dispersals, if the funds are eventually used on education.

Some parents worry about contributing to 529 plans in the event their children don't go to college, said Edward Jastrem, chief planning officer at Heritage Financial in Westwood, Massachusetts. But he added recent changes have made them a bit more flexible. Now, beneficiaries with money remaining in 529s can roll some leftover funds into a Roth IRA without paying the usual 10% penalty for withdrawing for non-education expenses. But there are limits. The 529 account must be at least 15 years old and there is a $35,000 lifetime limit on transfers.

That's a major caveat, which may make another set of custodial accounts more attractive. Those are Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) accounts. Ugly acronyms aside, these are basically taxable investment accounts for kids that aren't tied to either education or retirement. They're simple to use, and there are no contribution limits. But tread carefully.

"When it comes time for college and financial aid, those accounts are considered in your child's name and they ding you for financial aid," Catherine Valega of Green Bee Advisory near Boston told me. Aid calculations are complicated, but in general, assets such as a 529 in a parent's name are factored in less than those in the child's. Additionally, retirement accounts typically do not affect federal aid calculations.

The bottom line

As you can see, no single option is perfect for or even applicable to every situation. One thing the advisers I spoke with agreed on was that starting a retirement plan of any sort for your child does give them the benefit of time. And doing so creates a good opportunity to start talking about investing and saving. I liked what Jeremy Finger of Riverbend Wealth Management in Myrtle Beach, South Carolina, had to say about getting started early — as long as you're being smart about rates and debt.

"When people commit to retirement, they'll eventually find ways to buy the car and go to college and do those other things," he said. "You can borrow money for a car, you can borrow money for college, but you can't borrow money for retirement." — Charlie Wells

P.S. Send questions about your own financial dilemmas to bbgwealth@bloomberg.net. We may get expert answers for you, and feature your question and the answer in an upcoming newsletter.

2025 Investing Guide

My colleague Suzanne Woolley has just put out a helpful guide to investing for the year ahead. Let's be real: We're not even two months in and the narrative on everything from AI to inflation has already shifted. She quizzed investment experts for their views on topics ranging from locking in current bond yields to the outlook for crypto. Read to the end to get a hot take on the housing market from Mark Zandi, chief economist at Moody's Analytics. And don't miss Suzanne's latest installment of Where to Invest $10,000.

Market Moves

Gold hit a fresh record high. Bullion climbed as much as 0.7% to $2,954.84 an ounce on Thursday, before paring some of the advance. Geopolitical tensions have underpinned demand for haven assets and the precious metal has hit successive records this year, after climbing 27% in 2024. Goldman Sachs Group Inc. this week raised its year-end target to $3,100 an ounce, saying that stronger-than-expected central-bank buying would be a key driver for prices.

Walmart sank. The stock fell as much as 7% in New York after the company forecast lower-than-expected profit for the full year and suggested the uncertain economic environment is weighing on the world's largest retailer. On a call with analysts on Thursday, John David Rainey, the company's chief financial officer, described its guidance as consistent with past years, but acknowledged "there are still uncertainties related to consumer behavior and global economic and geopolitical conditions."

Wealth Gains

The biggest gainers and losers on the Bloomberg Billionaires Index over the past week:

Elon Musk was the biggest gainer in dollar terms, adding $17.2 billion and bringing his current worth to $401.7 billion. The companies of the world's richest man have gained a combined $613 billion in value since the US presidential election, assuming anticipated funding rounds go as planned, according to data compiled by Bloomberg.

Mark Zuckerberg lost the most in dollar terms, clocking a $7.4 billion loss which took his net worth down to $255.3 billion. (That said, he is still the world's second-richest person.) The majority of Zuckerberg's fortune is derived from a stake in Meta Platforms, which has been on a tear this year but wobbled slightly in recent days.

Real Estate Watch

NYC's 590 Madison Goes Up for Sale at Roughly $1.1 Billion

590 Madison Ave. in New York Photographer: David Howells/Corbis Historical

A Manhattan office skyscraper on Madison Avenue is up for sale, in one of the first major tests of the market for trophy office building sales this year. The property at 590 Madison Ave. is being priced at roughly $1.1 billion, according to people familiar with the matter, who asked not to be named citing private details.

The tower, located on Madison Avenue between 56th and 57th streets, is one of New York's biggest trophy assets to be actively marketed for sale since the pandemic, a period that has seen few major transactions. Read the full story here.

Dubai Developers Score Red-Hot Profits From Global Homebuyers

Commercial and residential properties in the Dubai International Financial Centre. Photographer: Christopher Pike/Bloomberg

The party is still raging on for Dubai's property developers.

Builders in the city, which is part of the United Arab Emirates, are reporting surging profits and record sales. Dubai was the world's third best performing location for prime real estate in 2024 with a 16.9% increase, according to the Knight Frank cities index. That demand has been driven by expats who've landed in the city and overseas buyers who've swooped in to capitalize on the boom.

Know Anyone Who…?

This week, we're looking for people who are applying to college and relying on financial aid. We are interested in asking about how prospective students are making plans based on changes at the Department of Education.

Some of our best journalism at Bloomberg Wealth comes from your own stories and we'd love to hear from you, your friends or clients. Please email bbgwealth@bloomberg.net if you'd like to get in touch.