How to Save Money for Your Kids
Just like parenting skills are essential to raising a child, parents also need to focus on financial expertise, which helps save money for their children’s future. It is crucial to make smart financial decisions to secure the future of your kid. Read on to know the best ways to save money for your kids.
Open Children’s Saving Account
Many banks offer children’s saving accounts, which are usually owned by parents. Opening a children’s account will help save money for your kids. At the same time, your kid will develop a saving habit instead of spending his or her money on non-essential things.
As a parent, you can set up periodic allowance transfers, and your kid will participate in managing his or her money. When you open an account with a credit union, they will pay out dividends on your children’s savings account when the balance reaches a hundred dollars.
As your kid grows, you will convert the account into a teen checking account. It is a time when the bank or credit union will issue a debit card. The visa debit card for your teenager comes with withdrawal limits, which means he or she will spend less money.
Focus on a 529 College Savings
Research shows that around 40% of parents with children ages eight to fourteen use 529 college saving plans. Financial experts say that the 529 plans are the best when it comes to saving money for college expenses.
You will find two types of 529 plans. The first one is a general college savings plan, and the second one is a prepaid tuition plan. The general plan allows parents to save money into an account, which they can use at any educational institution, including private K-12 schools.
Some states in America provide a tax deduction for contributing to their 529 plans. It means they will exempt the withdrawals used for education expenses from federal income tax.
Let us talk about the second type of 529 plan. It locks in the existing tuition rates for schools and colleges. Locking in tuition rates is of great benefit, and the college saving option offers reliability and flexibility for most families.
Open a Coverdell Saving Account
Just like 529 plans, it allows parents to save money for education expenses, which include both school/college and private tuition for K-12 grades. A Coverdell account does not come with tax deductibles as well as the account is limited to $2,000 per year.
Similar to 529 plans, Coverdell accounts are considered one of the most effective ways to save money for college expenses. However, a 529 plan does not specify any contribution limit, and at the same time, it offers a state tax deduction. This is something not offered by a Coverdell education savings account.
As parents, you have a huge responsibility to raise your children appropriately and make efforts to save money for their future, especially for their education. Undoubtedly, education is the key to success, but quality education is not cheap. Therefore, think about considering the above three options and start saving money for your kids.
|Thomas Moore is a proud American with a Bachelors Degree in Business Administration from the University of San Diego. He has been in the financial industry since 2007 holding numerous licenses in multiple states. He currently helps operate cashkingco.com and our resident expert on all things finance. LinkedIn Profile|