What You Should Know When Opening a Newborn Savings Account
You have a crib. Baby monitor. Stroller. Car seat with the highest safety rating. You have thought of everything for this new member of your family. Or you? What about your child’s financial future?
This post was originally published on the Get Rich Slowly site .
Which account to open for the child and when? According to financial planners, it’s never too early to create a savings account for your child, as well as a college savings plan. Here are some guidelines for different types of accounts:
savings account
Children under the age of 18 are not allowed to sign documents, therefore, when opening a savings account, you will need to put your name and the name of the child on the account. When your child turns 18, you can permanently delete your name. However, while your child is still a minor, you will own the account. You will be able to withdraw or make a deposit and close it if necessary.
What you will need: your child’s birth certificate and social security number, as well as your photo ID.
Small font. Make sure you read the small print on the type of account you are opening – are there any fees? Is a minimum balance required? Can you link your account to other existing accounts to opt out of commission? What is the interest rate?
Why saving early is a great idea
How about this? Put $ 5 per week from birth into a savings account that charges a 1% interest rate monthly and your child will have $ 5,605.68 on their 21st birthday ($ 5,577.41 when accrued annually).
College Savings Account 529
These favorite financial advisors, these state-sponsored accounts allow parents to invest money after taxes, which is then tax-free and tax-free if you use it to pay for your tuition.
Each state operates its 529 differently. Some states have only one program, such as Alabama with CollegeCounts 529. Other states offer options, such as New Mexico, which has Scholar’s Edge and The Education Plan. Some programs require you to go through a state-designated program administrator, while others allow you to manage yourself.
Did you know: You don’t have to live in the state to use the 529, although additional fees may apply. If you use 529 of your state, you can deduct a portion of your 529 contributions from the state tax account, which can save you a lot of money if you live in a high tax state.
Fine print: If you take 529 money for anything other than educational, you will be fined 10 percent of your earnings, plus you must pay federal income taxes. To top it off, some states add an additional 10% early withdrawal penalty.
About 529 plans impose severe withdrawal penalties in the first three years. Some plans have age restrictions – for example, they require your child to be under 15 to open an account.
Uniform Gifts for Minors Act
The Uniform Gifts to Minors Act (UGMA) allows minors to own property, such as securities. UGMA allows a minor to own assets without setting up a dedicated trust through an attorney. Under the UGMA, ownership of funds works the same as with any other trust, except that the donor must appoint a custodian (custodian) to care for the account. The gift must be accessed by a minor upon reaching the age of majority – 18 or 21 (sometimes even 25), depending on the laws of the state in which the account was created.
How did you save – or are you going to – save while your children are still young?
Preservation for the newborn | Get rich slowly