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Kids & Investing

A "Kiddie" 401(k) Plan!

Charles B. Carlson, CFA
Contributing Editor, Dow Theory Forecasts

You won't find a better deal in the investment world than a 401(k) plan.

401(k) plans are so named because they were given birth by Section 401(k) of the Internal Revenue Code. Section 401(k) allows employers to offer a way for their employees to delay payment of taxes while saving for retirement. The counterpart to a 401(k) plan for workers in tax-exempt organizations (schools, hospitals) is the 403(b) plan.

One huge benefit of 401(k) plans is free money. In addition to the tax advantages of 401(k) plans, most employer 401(k) plans offer "matching" contributions. My employer, for example, matches 25 percent of my contribution up to the first six percent of my salary. In other words, for the first several dollars I contribute to my 401(k) plan, my employer kicks in 25 cents for every dollar.

There's no doubt that the matching aspect of a 401(k) plan is an excellent draw for bringing investors into the plans. You can use the same "matching" idea for getting your child or grandchild interested in investing. Make this deal with your kids: For every dollar they save or invest, you'll match it with another dollar. Consider it your child's "401(k) plan" for taking out the garbage, cleaning around the house, doing the dishes, walking the dog, mowing the lawn, etc. I think you'll find that offering a "matching" program will get your child's attention and help him or her develop better savings habits than merely giving them an allowance each week and hoping for the best.

Setting Up A Child's Investment Account
Kids and the Power of Time
A "Kiddie" 401(k) Plan!
Kids Should Buy STOCKS!

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The performance of stocks is based on the S&P 500 Index. The securities markets are subject to the risks of fluctuating prices and the uncertainty of rates of return and yields inherent in investing. Savings accounts and certificate of deposit are FDIC insured and offer a fixed rate of return, and savings bonds are guaranteed by the government if held to maturity and offer a fixed rate of return and fixed principal value.


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