How To Build A Savings Plan To Protect Your Children

Watching your children grow is one of the best parts of being a parent. If you want to make it even more fun while providing for their future, put together a savings plan for them. Now might also be an excellent time to start investing for your kids, although it’s probably better to go with a low-risk portfolio in that case. It’s always a good idea to put together a savings and investment plan for your children, as it allows you to become more financially astute as you create a college fund for your kids.

Some options to consider when building a savings plan for your children:

#1 Create a Savings Account

It is about as basic as it gets. You are not going to see a high return on your investment, but it’s a safe place to put money for your kids.

• Before you open a savings account for your kids, be sure to look at the small print so you are aware of fees, minimum deposits, and other rules associated with the account.

• No two banks have the same type of savings account, so do a little side by side comparison before you open an account for your kids.

#2 Invest in a CD

If it’s low-risk you are after, a Certificate of Deposit (CD) is a great way to go. The funds that you invest are locked away for a specific time, which may be dependent on the interest rate. Terms range anywhere from 5-20 years, and sometimes more, so choose the one that works best for you.

#3 Create a College Savings Plan

There are many tax advantages to be gained from opening a 529 plan. Om most cases, taxes are deferred on the growth earned in these accounts. Also, if you need to withdraw, it may well be tax-free if the funds are being used explicitly for school expenses.

• You have two different types of 529 college savings plans to choose from. Those would be the prepaid tuition plan and the savings plan. Some of these are available on a state by state basis, so check to see what’s available to you. Also, check how each of them works before you decide.
• As of now, 13 states allow you to pre-purchase your child’s tuition based on current rates. These college plans are paid out when your child chooses to start college.
• In a savings plan, the earnings you make are based on the performance of any underlying investments, such as mutual funds. The college savings plans are state-operated and available in 49 states at present, as well as in Washington, D.C.

#4 Create a Custodial Account

It is possible to create a certificate or savings account held in the name of your child. All dividends are registered using your child’s social security number, but it is your name that will be listed as the account custodian.

• You can transfer funds to your child while you still manage the account. Once the transfer is complete, though, they are then the property of the child and can only be used for their benefit.
• When your child reaches legal age, all funds are turned over to them.

The above options are just a few ways in which you can save for your child’s future. Raising a child and putting them through college is expensive and will likely become more so. Getting started with a savings plan as soon as possible is always a good idea.