The Best Ways To Save Money For Kids

Kids, unsurprisingly, cost a lot. But what may shock you is the actual figure: It costs more than $230,000 to raise a child until the age of 18 in the U.S., according to the USDA Center for Nutrition Policy and Promotion—and that’s not even including college.
The good news is there are plenty of saving and investing tools to help you save for kids. And as soon as your kids are old enough, they can get on board too.
How To Save Money for Kids
When it comes to saving money for kids, certain accounts can provide advantages depending on what you’re saving for. Here are some of the best ways to save money for a child.
529 Plan
A 529 plan is a tax-advantaged investment account designed to help families save for education expenses. Every state offers a 529 plan, and each one is different. There are two types of 529 plans: prepaid tuition plans and savings plans. Prepaid plans let you prepay certain college costs, while savings plans are similar to other tax-advantaged investment accounts. Money can be withdrawn from a savings plan tax-free if it’s used to pay for educational expenses.
If you’re confident your child will go to college, a 529 plan is usually a smart place to invest.
Roth IRA
A Roth IRA is a tax-advantaged retirement account that allows anyone with earned income to make after-tax contributions. You can later withdraw from your account tax-free. While most people use a Roth IRA to save for retirement, the flexibility of the account means you can use it for other purposes.
You can withdraw contributions at any time, but you can only withdraw earnings without a penalty if you’re 59½ and your account has been open for five years. But there are some exceptions: For example, you can withdraw earnings to pay for qualified educational expenses at any time without paying a withdrawal penalty.
Custodial Accounts
Custodial accounts—like the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts—are managed by a parent or guardian until a child reaches the age of majority. Parents can make contributions of cash, investments and—in the case of UTMAs—real estate. When the child gets access to the account, they can spend the funds however they want.
UGMAs and UTMAs usually aren’t the best choices for college savings because these assets are considered when applying for financial aid. Plus, there aren’t restrictions on how the money can be used.
Health Savings Account (HSA)
Health Savings Accounts (HSAs) are highly tax-advantaged investment accounts that can help you save for your family’s medical expenses, easing the burden of increasingly expensive healthcare. But they’re only available to those with high-deductible health insurance plans.
With an HSA, you make contributions tax-free, the money grows tax-free and you can withdraw it tax-free to make qualified medical expenses. If you have adult children covered by your insurance policy, they may be able to open their own HSA.
Other Ways To Save for Kids
If you’ve maxed out other options, have special circumstances or are looking for more flexibility, one of the following accounts may help you save for the kids in your life.

Taxable investment account. This type of investment account doesn’t provide tax benefits like others mentioned, but it is extremely flexible and can be a good option for long-term savings. Note that your assets in a taxable investment account will be considered when your child applies for financial aid.
ABLE account. The Achieving a Better Life Experience (ABLE) Act created tax-advantaged investment accounts for those who have experienced the onset of disability before turning 26 years old. While the person with the disability is the account owner, anyone—including parents, friends and employers—can contribute to the account.
High-yield savings account. If you’re saving for a short-term goal or need funds to be easily accessible, a high-yield savings account will earn more interest than a regular savings account.

How Can Kids Save Money?
Of course, you shouldn’t be saving for your kids without teaching them the importance of saving for themselves. Whether they’re responsible for saving a portion of their college expenses or earning an allowance for the first time, here are some strategies to help your kids save.

Give kids a dedicated place to save. Starting with a simple piggy bank, kids can learn how their money adds up over time. When they’re old enough, help them open a savings account for kids at a bank.
Help your child open a Roth IRA. As soon as they have earned income, your child can start contributing to a Roth IRA. If they’re a minor, the account will require a custodian. A retirement account like a Roth IRA is a great opportunity to teach your child about compound interest and investing.
Encourage them to apply for scholarships and grants. If your child is planning to go to college, help them understand how much money scholarships and grants can offer and work together to find the best ones to apply for.

Apps for Kids To Save Money
Your kids likely have a lot more access to technology than you did at their age. As a parent, you can take advantage of mobile apps to help your kids save money and learn about finance.

Gohenry. Gohenry is a paid app with a connected debit card for kids and teens. Parents can set spending controls, assign chores and pay allowance through the app.
FamZoo. FamZoo is a paid family banking app kids can use to learn about saving, budgeting, borrowing and more. As a parent or guardian, you can either set up an IOU account to track your child’s money or provide a prepaid card that lets your child do their own spending
Greenlight. Greenlight includes a paid debit card and app that lets parents supervise their kids’ spending and investing from a linked checking account. The account also earns interest, which parents can supplement to encourage saving
Stockpile. Stockpile is a paid app that lets famlilies learn about and buy investments together. Stockpile allows kids to choose investments, but they require adult approval to make the transaction final.
As your kids grow up and become more financially independent, they can take advantage of other money-saving apps that help adults save and invest more.
How Much Should I Save for My Kids?
When you begin to save for kids, it may seem impossible to reach your goals—especially when it comes to paying for higher education. College is expensive, and the cost is only rising.
If you plan to contribute to your kid’s college education, don’t try to save for the entire cost. Instead, many experts suggest you follow the one-third rule, which says you should aim to save one-third of the estimated future cost of college. The other two-thirds of the cost will come from future income, financial aid, and student loans.
Use an online college savings calculator to figure out how much you should plan to save. It will depend on your child’s age, the estimated cost of college, how many years you have to save and how you’re investing the money.
Raising kids—not to mention sending them off to college—costs a lot of money. But the right account can make saving for your kids easier. While you’re saving for your kids, make sure you’re getting them involved too. Whether they’re saving pennies in a jar or applying for college scholarships, they’re never too young to contribute to their own financial success.

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