Starting saving for your son or daughter’s future may seem overwhelming. However, it doesn’t have to be daunting, especially when you know how to do it. For starters, decide what you want for your children and the goals that you have for their future. You need to know the purpose of saving the money to determine the tips or ways of saving. You can use these saving tips for the college tuition, future medical expenses, general savings, or educational expenses of your child and secure their future.
- 529 Plans
Also known as a qualified tuition plan, 529 plans enable you to save for your child’s education while taking advantage of tax benefits. You can choose from prepaid tuition plans or educational savings plans, all under the 529 plans. The government sponsors the education savings plan. It allows you to open investment accounts for your kids who can use the funds for fees, board, tuition, or other higher education expenses. The prepaid tuition 529 plans allow parents to prepay costs and tuition at the current prices.
- Roth IRA
Opening a Roth IRA in your child’s name is an effective way of saving for his or her future. However, your child must have an income for this saving option. Therefore, it is an ideal way of saving for the future of your teenager. Your child gets tax-free money after retirement. However, Roth IRA is different from other retirement accounts because you can use the funds for qualified college expenses. Your child will not face an early withdrawal penalty, though they have to pay taxes on the earnings.
- Trust Funds
Trust funds are not as common, but they are a great way to save money for your child. You can set up a trust fund with any amount, though it doesn’t make much sense if you don’t have a large amount of cash. You should consult a lawyer to draw up the trust documents and appoint a manager. Trust funds are perfect for wealthy families because they provide more control over disbursements and protect children’s assets during a divorce. Factors like how long does a divorce take or whether you have to split assets after the separation don’t affect your child’s trust funds. Trust funds for your child’s future are protected from creditors.
- UTMA and UGMA Accounts
Another way of saving for your child’s future is opening a Uniforms Transfer to Minors Act Account. When the child attains the age of 21 or 18, the assets in the account are transferred. Your child then decides on how to use the funds. Therefore, children are not limited to qualified education expenses since they can use funds for discretionary purchases or other living expenses. The best part about UTMA or UGMA is that you can contribute any amount you want towards your child’s future. However, you cannot control how your child uses the funds, and tax benefits are not guaranteed.
- A Custodial Account
Opening a custodial account for your son or daughter is ideal for a broader savings purpose. The account doesn’t limit you to college expenses. You can choose a custodial account to save for your child’s house or business once they become an adult. You fund and manage the account, but your child is the account holder. The pros of starting a custodial account for a child is that it doesn’t have restrictions as long as your child is the beneficiary. A portion of the account’s profits is tax-free, while the rest is taxed at the child’s income tax rate.
- Savings Account
Parents can opt for traditional savings accounts to secure their children’s future. However, the interest rates for savings accounts are low, and the interest is also taxed as income. The upside of opening a savings account for a child is that it provides a haven for the funds and secures a child’s future.
- Invest Account
You can secure your child’s college education through an investment account. You contribute any amount of money every year, and your child can use the funds for any expenses. That means that children can use the funds for college education of other uses. The money you save is invested in a diversified portfolio of ETFs. The level of risk is also minimal.
Conclusion
You can choose any of the above saving plans for your child’s future at different stages of your working life. The best way to set money aside for saving is to avoid impulse buying since every coin counts. Ensure that you educate your children about the importance of savings to secure their future.
