The Advantages of Opening a Kids’ Savings Account

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A kids’ savings account can help your children achieve future financial goals, like going to college, purchasing a car, or paying for a wedding or trip. According to Forbes, the four-year cost of sending a kid to an in-state public university was $18,550 in 2020. If your child dreams of an Ivy League education or escaping to the University of Hawaii, the expenses only go up. To pay for college, you may want to start saving and investing now instead of relying on financial aid or scholarships to cover the costs. With a bit of knowledge, you can make smart choices to maximize your savings for your child’s education. Here’s everything you need to know to get started with a kids’ savings account.

Investment Account for Kids

Why Do You Need A Kids’ Savings Account? 

You need a kids’ savings account to help your child achieve their goals and reach their potential as they become adults. In many cases, you can find a savings account that allows you to make automatic deposits, so you can save without thinking about it.

When you have young children, starting a savings account now can make a real difference to their future. Of course, before you start money aside each week or monthly, you need to know that there are real benefits for you and your family. 

Here’s a look at some of the best benefits for opening a kid’s savings account:

1. Tax Benefits of Kids’ Savings Account

Depending on the type of savings account you select, you may find some excellent tax benefits. In some cases, the funds you place in a kids’ savings account aren’t taxed when you deposit them. For example, if you make $50,000 a year and you deposit $1,000 each year, your taxable income before other deductions will drop to $49,000. 

Other accounts help you defer taxes when you deposit the funds and don’t charge you federal taxes when you use the money for your child’s education later on. This means it’s money that you never pay taxes on.

2. Financial Education at a Young Age for Children 

You want your children to learn the value of money and how to make intelligent choices. While you might believe that your children do what you say, they do what they see you doing.

Saving now for your child’s future is a great way to start their financial education. Depending on your child’s age, you can encourage them to help you select the correct type of savings account and even contribute a little to it. 

3. Streamline Your Savings for Future Education Needs

You know that your child needs a college education to succeed in the modern world, but it’s so expensive. By opening a savings account now, you can streamline your savings for your kid’s future educational needs. There are many savings accounts out there that cater to parents looking to maximize their savings efforts for their children.

Investment Account for Kids

Choose the Right Kids’ Saving Account for You

The best option for one person isn’t necessarily the right one for you. You and your family have unique needs and income availability. You might be willing to take more risks than someone, or you may want to play it safe and earn basic interest. Another factor is the amount of money you have to save and the goals you want to achieve. With so many options available for a kid’s savings account, you need to learn more about them to make an informed decision. 

1. Traditional Savings Account

A traditional savings account is almost certainly your safest bet. You can secure a traditional savings account at almost any bank or credit union in your local area or secure one online. The biggest disadvantage to a traditional savings account is that you don’t earn much interest from this type of account, and you must pay taxes on it. Interest earned on this type of account is influenced by the interest rates set by the Federal Reserve, which lowers it when they want people to spend and raise it when the economy is good. 

2. UGMA/UTMA Account

These accounts were created by Congressional legislation, and it allows you to save money for your children and maintain control of it until your child becomes a legal adult. Once your child becomes an adult, the funds in the account and control over it transfer to them. In the past, you would’ve needed a trust or face tax consequences to accomplish this. 

3. General Investment Account

A general investment count is precisely like the one that you would open for yourself. You’re responsible for paying the taxes on the income you place in the account and any profits you make. Also, you’ll need to hire a professional financial advisor to make the investments for you. These fees can eat into any profit that you realize on these accounts. If you want to go down this route, UNest offers a tax-advantaged investment account designed primarily to save money for your kids’ future. Unlike other college savings plans, with UNest, you can use the funds for other future projects your children may have, like buying a car, pay for their wedding, or a big trip.

4. Education Savings Account

The Coverdell education savings is an account that the government created to help parents save for college. Your child must be 18 years old or younger, and the funds must be used by the time the child reaches the age of 30. These are tax-deferred accounts, so you don’t pay taxes until the funds are spent on education. Recent changes to the law allow you to spend some funds on eligible private schools for grades K-12. 

3. 529 Savings Account

A 529 savings account is named after the tax code that created it. This plan allows you to save for your child’s education and doesn’t have a maximum amount to add each year. It also defers taxes, and you won’t pay federal taxes when you use the funds for education. However, the individual states are responsible for the plans, and not all states offer them. 

UNest: Invest in Your Children Future

One of the ways to invest in your children’s futures is with UNest. This app allows you to open a single tax-advantaged investment account for one child or up to five kids with a family plan, both with a very low monthly fee. Once you set up the account, you can choose and manage the investments you want to pursue or get recommendations based on your child’s age and your saving goals by the app automatically. 

One of the main differences between UNest and other college savings plans is the flexibility of using the funds. They don’t have to be used strictly for education; your child can use the money to buy their first car or open a business or anything else they want to spend the money on when they grow up.

To help you save for your kids’ future, you can ask family and friends to add money directly into the account. As an extra benefit, you also earn cashback from places you shop through the account. With a convenient mobile app, you can quickly sign up and manage your account from anywhere, anytime. 

Choosing the right kids’ savings account for your children is essential for success. There are many options available, and by selecting the right one, you can help your child become a successful adult.

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