Building Wealth for Your Kids: Strategies to Accumulate a Significant Fortune for Your Offspring
When it comes to saving for your child's future, there are several factors to consider, including the appropriate investment forms and potential tax advantages. Here's a breakdown of the key points to keep in mind.
Investment Forms Depending on Savings Goals
The type of investment you choose will depend on the specific savings goal. For instance, a one-time investment in a fixed-term deposit might be suitable for expenses like a driver's license or a car, while a monthly savings plan in a globally investing index fund like the MSCI World could be more beneficial for costs such as education or a move.
Saving for a Move or First Apartment
Saving for a move or the first own apartment can be achieved with a monthly ETF savings plan on the MSCI World. This long-term investment strategy can help you accumulate the necessary funds over time.
Children's Accounts: Financial Education and Tax Advantages
Children's accounts offered by banks and savings banks may have better terms and higher interest rates, but they usually only remunerate small amounts well. However, the real advantage of a children's account lies in promoting financial education for the child.
Saving in a child's name instead of the parent's can offer tax advantages. The income generated by the child's account is often taxed at the child's typically lower tax rate, and the first portion of the child's unearned income may be tax-free or taxed at a minimal rate.
Key tax advantages include:
- Interest taxed at the child's lower rate or 0%: For most children, interest earned in an account under their name is taxed at their own rate, which often can be zero if the interest is under a certain threshold.
- Standard deduction on child's unearned income: As of 2025, the first $1,350 of a child's unearned income (like interest or dividends) is tax-free, and the next $1,350 is taxed at the child's tax rate.
- Kiddie Tax benefit: By holding investments in the child's name, the first ~$2,700 of unearned income benefits from lower or no tax before triggering the Kiddie Tax, compared to if the income was attributed to the parent at a higher tax rate.
- New child-specific accounts with tax advantages: The recently introduced "Trump Account" (or MAGA Savings Account) allows contributions up to $5,000 annually in after-tax dollars for children under 18. These accounts grow tax-deferred, meaning interest and investment gains are not taxed while in the account and taxable only upon withdrawal.
However, it’s important to note that the Kiddie Tax limits how much income can be sheltered before parents’ higher tax rates apply, and new child savings accounts like the Trump Account have specific rules about contributions, taxable growth, and withdrawals, and final IRS guidance is pending to clarify details.
Investment Tips for Your Child's Future
When saving for your child's stay abroad, global ETFs like the MSCI World or the more comprehensive MSCI ACWI index are a good option if you have at least 15 years to invest. A savings plan of 50 € or 100 € per month with an 8% return can accumulate significant amounts by the time the child reaches majority.
Since you usually don't know exactly when a wedding expense for your child will arise, you should only consider ETFs if you have at least 15 years left to invest. A one-time investment of a few thousand euros at the beginning can further increase the total amount.
Do you believe your child can rely on a comfortable state pension in 2090? If not, you can help by starting to build wealth for their retirement early. To invest money effectively in the long term, you should invest in the stock market. The average annual return on stocks and stock ETFs is significantly higher than other investment forms like checking or fixed-term deposits, and bonds.
Daily money accounts are ideal for managing smaller amounts of money for children, with up to 100,000 € protected by deposit insurance. Start a savings plan on a global stock ETF like the MSCI World early to benefit from an average annual return of 8%. This will also give you the strong effect of compound interest, and you'll have to contribute less. If you save in your child's name, for example via a junior account, you can also benefit from tax advantages.
In summary, saving in the child's name can result in lower tax on the earnings up to certain thresholds, use of the child's standard deduction, and tax-deferred growth in specialized accounts, which can be more tax-efficient than holding the same savings in the parent's name.
A digital wealth manager or Robo-Advisor could be a solution for those who prefer not to manage their investments themselves.
- A monthly ETF savings plan on the MSCI World can be beneficial for saving towards expenses such as a child's education or a move, since it is a long-term investment strategy that can help accumulate necessary funds over time.
- Saving in a child's name instead of the parent's can offer tax advantages, such as interest being taxed at the child's lower rate or 0%, standard deduction on the child's unearned income, and potential tax-deferral in accounts like the recently introduced 'Trump Account'.
