Should I Open One 529 Account For Both Of My Kids Or A Separate Account For Each
That depends on your personal preferences, but opening separate accounts often makes sense. Two accounts let you contribute different amounts for each child as needed, tailor your investment portfolios to each childs age, and avoid commingling funds. If you choose one account and invest too aggressively, you might incur losses when your older child is close to college. And if you invest too conservatively, your investment returns may not keep pace with college inflation for your younger child. You also run the risk of depleting most or all of the funds for your oldest child.
How a 529 Account Helps at College Time
Account For Children: Good To Know
If youd like to handle your childs assets with as few complications as possible until they reach adulthood, we recommend a savings account for young people or a gift savings account in the childs name. Childrens accounts offer better interest rates and are for saving, not for making regular withdrawals.
Because you have a longer deposit horizon, i.e. the money wont be needed for a long time, an investment fund account might interest you. Consult an advisor at your bank to find out which solution suits you and your child.
Who Owns The Funds
First, it matters whether you keep the funds in your name or put them in your grandchilds name.
The money you save could hurt your grandchild’s financial aid application. This is mainly true if the money is in your grandchild’s name.
The Free Application for Federal Student Aid calculates how much financial aid a person should get based on a specific formula.
That formula heavily penalizes students for money held in their name when determining their ability to pay for college.
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Alternative To Baby Savings Accounts
Putting your childs savings in a traditional bank account is a great start. However, you may want to be more specific about what the money is used for.
For example, you may want to save specifically for your childs college education.
There are vehicles specifically for saving for educational expenses that also provide tax benefits to you.
Consider taking advantage of these accounts as opposed to simply putting your funds in a traditional savings account.
Here are two that you can explore:
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Coverdell Education Savings Accounts
There are other ways to save for a childs college tuition. A Coverdell Education Savings Account is a type of custodial account that can be set up to save for education expenses. This account grows tax-deferred just like a 529 plan and qualified withdrawals are tax-free. But there are some key differences:
Annual contributions are capped at $2,000 and are not tax-deductible
Contributions must end once the child reaches age 18
All funds must be distributed by the time the child reaches age 30
If you leave money in a Coverdell ESA past the childs 30th birthday, the IRS can impose a tax penalty. Any withdrawals of ESA funds that arent used for qualified education expenses are subject to income tax.
Requirements For Opening A Bank Account For A Newborn
The requirements for opening a bank account for a newborn are a little different from opening a bank account for yourself. Thats because the bank needs to be able to verify your identity as well as the babys.
Generally, the list of things youll be required to provide to open a savings account for baby include:
Your name and your babys name
Dates of birth for yourself and the baby
A copy of your government-issued photo ID
The babys birth certificate
Your address, phone number, email address, and Social Security number
The bank may ask for the babys Social Security number though its possible you may not have this yet at the newborn stage. And if you dont have a Social Security number of your own, you may have to provide a substitute federal ID such as your Individual Taxpayer Identification Number .
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Don’t Forget Your Daughter’s Financial Education
As your daughter gets older, be sure to involve her in the process. Help her create her own savings goals and have her save a portion of any money she gets. This will get her into the savings habit early, teach her how money grows, and help her make good spending decisions. No matter how much you save for your child, teaching her to be financially independent is really the greatest opportunity you can give her.
Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries contact Schwab.
1Per beneficiary in a single year if you elect to recognize that gift over five years for tax purposes and make no additional gifts to that beneficiary over the next five years.
Key Takeaways On Savings Accounts For Babies And Kids
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A child can generally have a savings account at any age
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The best kid savings accounts earn interest and have no monthly fees
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A parent or guardian will likely need to open the account
Your child might already know about bank accounts from books or TV. But if they ask where money comes from or how to have their own, it might be time to open a kids savings account.
A kid-focused savings account provides your child with a glimpse into how banks and credit unions work and gives them a place to stash allowance and birthday money. If your child has accumulated funds and you want them to learn about banking, you can give them the opportunity to grow their money in a savings account.
Here are answers to common questions about savings accounts for kids.
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Should You Open A Bank Account For Your Baby
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You can always create a savings account with the funds earmarked for your baby, but opening the account in your newborns name provides not only a savings vehicle but a great gift and financial literacy tool as your child grows. The process is straightforward enough but requires some preparation, according to www.thebalance.com.
Setting up the account
Children under the age of 18 are not legally allowed to sign documents. As a result, you must open the accountin both of your names. When the child becomes 18, you can go to the bank and remove your name permanently. While your child is still a minor, however, you will be the one who will have control of the account. You will have the ability to make withdrawals or deposits and close it if necessary.
Most banks will not have a problem with including the childs name if a parent will also be listed on the account. However, the institution will want some confirmation of legal responsibility for the child.
You should plan on showing your babys birth certificate, and you will also need to show your own driving licence or some other official proof of identity. In addition, you will need both of your social security numbers to open the account.
Fees
Savings accounts often carry fees, but ways to get around them exist. Start by talking to the bank you currently use. They may let you link this new account to your other accounts, allowing you to avoid fees or minimum-balance requirements.
Location
Save For College By Starting Early
A variety of savings accounts exist, but one of the most important will be the account built up for your childs entrance into higher education. When saving for a college education, you should give the principal balance as much time to grow as possible on account of two words: compounding interest. For example, if you can open a college savings account, such as a 529 College Saving Plan, as soon your baby is born, youll give your son or daughter 18 years of potential growth they can later tap into for college tuition and expenses.
Of course, it would be ideal if you could dump $20,000 into this account right away and not worry about it for the next 18 years, but even a small initial investment can grow substantially over time.
Bottom line: a college savings account should be opened as soon as possible with regular deposits being made into the account. These deposits dont have to be budget-busting amounts think more along the lines of $100-$200 a month. See how much your money can grow with our compound interest calculator.
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Newborn Baby Tips: Common Sense Advice For New Parents
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As any expectant parent knows, theres no shortage of advice available for all things baby-related. Look no further than the enormous Parenting section at the bookstore as proof or the exponential growth of Mom blogs, for that matter.
With so much advice out there, its difficult to make even the most basic decisions, from what type of diapers to buy to what kind of food to nourish your little bundle of joy with. To make things a bit less complicated, weve compiled some of the most reliable, tried-and-true, common sense advice available to help guide you through some of your most pressing baby-related conundrums.
Midwife or doctor?
The midwife vs. doctor debate is a very entertaining ongoing storyline on The Mindy Project. Mindy Kalings character, an ob-gyn, convincingly argues that doctors are the way to go because theyre equipped to handle complications that may require, say, an emergency C-section.
Of course, you may be looking for more substantial pros and cons than those offered up as sitcom fodder. This in-depth TIME article provides a comprehensive look at both sides of the debate. Ultimately, this is a very personal decision that comes down to your own preference. Midwives do offer unique advantages. For instance, if you have your heart set on a water birth outside of a hospital setting, midwives can offer more flexible, customized birth plans for low-risk pregnancies.
Breast-feeding or bottles?
Organic food or conventionally grown?
Investing In An Index Fund
Minors cant buy and sell shares, and even if they could, you shouldnt trust an infant to make sensible investments. But, you can do it for them. Buying individual stocks can be a good choice if you back your judgement according to the ASXs 2020 Long-Term Investing Report:
- Australian shares averaged returns of 9.3% p.a. over the past 10 years
- Global shares returned 13.95% p.a. over the last 10 years
But picking the right stocks can be tricky, which is why you can use an exchange-traded fund , a passive and low-cost way of gaining exposure to a particular index, like the ASX200. Although the global share market has been quite volatile recently, it has always represented historical long-term growth.
Looking at the graph below from Trading Economics, you can see that despite the GFC, the ASX200 has risen from just above 3,000 points in the year 2000 to around 7,000 in 2021 a return of over 100%.
Youd be unlikely to match these returns exactly with an index fund due to the fees , but at a 9.3% annual rate of return, an initial investment of $10,000 with an extra $5,000 being invested every year would give you a final balance of more than $280,000 after 18 years.
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How Much Should You Save For Your Baby
First, lets dispel the myth that you have to have a lot of money to even begin saving because you dont.
Lets do some math
If you were to save $1/day, every day for the first 18 years of your childs life, how much would you have saved?
$1 X 365 days per year X 18 years = $6,570
Now, to some, roughly $6,500 doesnt seem like a lot of money. But, Ill argue that for a kid who comes into the world with nothing, it can be a lot.
Furthermore, for families who find it impossible to even put $1,000 toward an emergency fund, its a great feat to accomplish.
That $6,500 could be a semester of college tuition, start-up funds for a business, money towards a car, or funds that can be used to start investing.
Whatever its used for, its a headstart that your child may not have had otherwise.
Ill also mention that this doesnt take into account that these funds can be put into an interest-bearing or investment account that would allow it to grow exponentially over time.
The point here is that you can start saving for your childs future with something as small as $1 a day.
There is no right or wrong amount. Just start saving!
Best For Teens: Alliant Credit Unions Kids Savings Account
Alliant Credit Union
Alliant Credit Union starts your childs saving journey outright with a competitive interest rate, no fees, and an excellent mobile banking app designed for kids and parents. Then as your child ages, Alliants Teen Checking provides even more useful features, making it our pick for the best savings account for teens.
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Mobile banking app that provides child- and parent-friendly features
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Teen checking account with debit card available at age 13
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Teen checking pays interest and offers ATM fee refunds
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Interest is only paid when balance is $100 or more
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No ATM or debit card before age 13
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Some youth accounts pay higher interest, although only on limited balances
For younger children, learning how to bank is an evolving process, and Alliant provides an excellent Stage 1 option with its Kids Savings Account, followed by an even more impressive Stage 2 option with its Teen Checking Account. Both pay competitive interest and offer well-designed mobile app experiences geared specifically toward kids and parents.
Once your child turns 13, they can add an Alliant Teen Checking Account and ATM/debit card. This is one of the best youth checking accounts nationally available, paying more interest on checking balances than most other accounts. The account has a 0.25% APY. Whats more, Alliant offers free ATM transactions at more than 80,000 ATMs nationwide, as well as up to $20 per month in ATM fee reimbursements.
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What Do I Need To Open A Bank Account For My Child
Kids under the age of 18 cannot open up a bank account on their own. So you’ll be opening a custodial bank account .
This means you will be part-owner to this account.
If you open a savings account at a brick-and-mortar bank, you’ll need your documentation as well as your child’s documentation in order to do so.
Hint: When I opened my son’s online savings account using the Capital One Kids Savings Account, I simply needed my son’s Social Security Number, birth date, and other information. I did not have to provide the actual documents.
With bank accounts for kids, both of you will need your social security cards or just the numbers .
Opening A Savings Account For A Newborn Baby: What You Need To Know First
Were here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey.Read moreWe develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide.We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right.Read less
Opening a savings account for a baby can seem like a good way to start a child off on a successful financial path. You begin to build a little nest egg for Junior and hopefully, as the little one grows, can teach good savings habits. Its certainly not the only option available to begin building wealth for a baby, but it is one of the simpler ones. The most important step can be doing some research to figure out which type of account to open and where to keep your babys savings which is something we can help with!
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A Bank Account For A Baby
Of course your baby can grow up just fine without a bank account. And you can keep gift money in a piggy bank at home. Nevertheless, its still a sensible and practical idea to open an account for your child while theyre still a toddler because youll have to open one sooner or later anyway. This way your child will gradually start learning how to handle a bank account early on. At the same time, as the administrator of their account, youll have the overview. On top of that, the cash deposits will grow thanks to interest rates. Of course, anyone who wants to give your child money can open an account for them.