The Top Three Accounts to Build Generational Wealth in the Stock Market
We’ve been getting lots of questions lately about how to build generational wealth through the stock market. It’s a smart question, because unlike many of the benefits we think of in retirement planning—like Social Security or pensions—investment accounts can actually extend beyond your lifetime and provide financial security for the people you love.
Generational wealth simply means creating resources that don’t just sustain you in retirement, but can be passed down to children, grandchildren, or even other heirs. It’s about building a foundation today that benefits your family tomorrow.
Why Social Security and Pensions Don’t build Generational wealth
Social Security and pensions play an important role in retirement income, but they don’t create generational wealth. That’s because these benefits are designed to support you during retirement and, in some cases, your spouse after you pass away. Once you and your spouse are gone, the benefits end.
You can’t pass Social Security checks to your children. Similarly, pension payments may have survivor benefits for a spouse, but they won’t carry on to the next generation. These income sources are personal—they stop when your life (and sometimes your spouse’s) does.
If your goal is to extend financial security beyond your lifetime, you need to look at investment accounts like 401(k)s, IRAs, brokerage accounts, and even 529 college savings plans. These can all play a role in creating long-lasting wealth.
Brokerage Accounts: Flexibility that lasts
A taxable brokerage account is one of the most flexible tools for building and passing on wealth. Unlike retirement accounts, there are no age restrictions or penalties for withdrawals, and you can invest in a wide range of assets like stocks, bonds, and mutual funds.
When you pass away, the assets in your brokerage account transfer to your beneficiaries. A key advantage is the step-up in basis rule: your heirs inherit investments at their market value on the date of your death, not at the price you originally paid. This can dramatically reduce the capital gains taxes they owe if they decide to sell the investments.
In other words, brokerage accounts don’t just provide flexibility during your life—they also provide a tax-efficient way to pass on wealth to the next generation.
401Ks and IRAS: Structured inheritance with strategy needs
Retirement accounts like 401(k)s and IRAs can also be powerful tools for building generational wealth, though they come with more rules.
If your spouse is the beneficiary: Your spouse can roll the account into their own IRA and continue taking Required Minimum Distributions (RMDs) based on their life expectancy. This allows the account to continue growing tax-deferred, which can make a big difference over time.
If children or other heirs inherit the account: Non-spouse beneficiaries must open a beneficiary IRA. Under rules updated by the SECURE Act, most beneficiaries are now required to withdraw all the money within 10 years of inheriting it.
This 10-year rule can actually be strategic - read more in-depth on blog here. For example, your heirs might spread withdrawals evenly over the decade to minimize tax impact. Or, if they expect a year with lower income (say, a job change or going back to school), they might take a larger lump sum then.
The key point is that these accounts don’t just vanish when you die—they can be carefully managed to benefit your loved ones. Some families even choose to use inherited retirement funds to seed new brokerage accounts or contribute to their own retirement accounts after paying the taxes.
529 Plans: A new Path to Wealth Transfer
College savings plans, or 529s, have traditionally been used to cover educational expenses. But recent rule changes have made them a surprising tool for building generational wealth.
If the funds in a 529 plan aren’t fully used for education, up to $35,000 can now be rolled into a Roth IRA for the beneficiary, as long as certain conditions are met. This is a huge shift—because Roth IRAs grow tax-free, and withdrawals in retirement are also tax-free.
That means money set aside for education could ultimately become a long-term, tax-free retirement asset for your child or grandchild. It’s another way to ensure the dollars you save today continue working for your family decades down the road.
putting it all together
College savings plans, or 529s, have traditionally been used to cover educational expenses. But recent rule changes have made them a surprising tool for building generational wealth.
If the funds in a 529 plan aren’t fully used for education, up to $35,000 can now be rolled into a Roth IRA for the beneficiary, as long as certain conditions are met. This is a huge shift—because Roth IRAs grow tax-free, and withdrawals in retirement are also tax-free.
That means money set aside for education could ultimately become a long-term, tax-free retirement asset for your child or grandchild. It’s another way to ensure the dollars you save today continue working for your family decades down the road.
*Disclaimer: This is for general informational and educational purposes only. It is not intended to constitute investment, legal, tax, or financial advice. Please consult your tax advisor and financial professional for advice tailored to your circumstances.
Past performance is not indicative of future results. The projections and calculations presented in this model are based on certain assumptions, which may not materialize. Actual investment results may vary significantly from those illustrated. Investing in securities involves risks, including the potential loss of principal. This information does not consider individual risk tolerance, financial situation, or investment objectives. Participants should assess their own financial circumstances before making any investment decisions.
