By saving money for a child’s future, parents not only invest in their child but also teach their child about making long-term financial decisions. Although many may at first think of college savings plans, there are other options for putting away money for future use by your child.
Most banks offer free youth savings accounts for a child of any age who has a social security number. The interest rates on savings accounts do tend to be lower than with other investments. However, the money is also accessible at any time and for any reason.
529 College Savings Plan
529 college savings plans offered by every state provide a way for parents and grandparents to save money for a child’s college education. As long as the money gets used for college educational expenses, the interest earned is not taxed. If your child does not go to college, then you can cash the money out for yourself. However, since the funds were not used as intended, the disbursement will be taxed.
You can even think beyond college and help your child save for retirement. However, this option is only available to working children. If your teenager has a paying job, he can open an IRA and you can deposit money into that IRA. Janet Bodnar, editor of Kiplinger’s Personal Finance, reports that Roth IRAs make better investments for kids.
Before investing in your child’s financial future, take some time to look at the different options to determine what you feel is best for your child. You may find that you want to focus on only one type of investment. However, if you have the ability to put away a significant amount of money each month, then you may want to invest in more than one type of account for your child.
Kiplinger: IRA Rules for Kids