How to Save Money for Your Children’s Future (2024)

By Kia Jackson • October 03, 2022

We all want the best for our children. We want them to get a great education, live their best and healthiest lives, and reach their fullest potential. One way to give them the greatest opportunity for success is by saving toward their financial future. If you haven’t already mapped out a savings plan for your child, here are a few ideas that can help you find the best way to invest for your child’s future.

6 ways to save for your kids

Every dollar you’re able to set aside for your children’s future can get them closer to financial security as they get older. There are a number of ways to begin building that nest egg, including:

1. Open a savings account.
   Traditional savings accounts offer a tried-and-true way to store money. While your savings won’t earn much in terms of interest, you’ll get peace of mind in a federally insured bank knowing that your money is safe. If you’re not sure how to open a savings account for a child, either ask wherever you currently bank about potential kids bank account options, do a bit of research online or ask your friends and family how they save money for their kids.

2. Open a custodial account.
   When you set up a custodial savings account at a bank or custodial investment account at a brokerage, you get to control and manage the account for your child until they turn 18 (or up to 25, depending on your state). At that point, they may then be eligible to take over and are free to use the funds in the account. This option could be the best type of account to open for a child if you want to make sure they have limited to no access to the funds while they’re young.

   See Also

   What Is A Custodial Roth IRA? - NerdWallet

3. Start a 529 plan.
   Nearly 64% of undergraduate college students take out student loans, with the average amount of loan debt over $26,000 for public colleges and nearly $32,000 for private colleges.¹ Considering that, starting a savings plan for your child to help cover potential future education costs might be a good idea. A 529 plan is an investment account that offers tax advantages when used to pay for education expenses for your child or yourself. Most plans allow you to have contributions automatically deducted from your bank account monthly, or make lump-sum contributions whenever you can. In most cases, others like friends and family members can also contribute to the 529 plan, which could help your child’s college savings grow faster.

4. Open a Roth IRA.
   Many people view this as only a retirement account, but withdrawals from a Roth IRA can be made to pay for college expenses without the typical early withdrawal penalty of 10%.² A Roth IRA allows you to contribute up to $6,000 a year of earned income if you’re under 50 years old and up to $7,000 per year of earned income if you’re 50 or older. Earnings on your contributions grow tax-free, and you can withdraw any of the principal (that’s the money you’ve contributed to the fund, not the money earned on it) without penalty. To withdraw any of the earnings, you must be age 59 ½ or older, otherwise, you’ll be charged a 10% penalty. However, withdrawals for college expenses, first-time home purchases or birth/adoption costs may be some potential exceptions to the rule. Since these are major expenses your child may face in adulthood, a Roth IRA may be a great way to save for your child’s future.

5. Set up a trust fund.
   Much like custodial accounts, trust funds may also allow you to open and manage an account for your child until they are old enough to do it themselves. But a trust fund can give you even greater control over exactly when and how your children access the account. An attorney can help you create a trust fund with the instructions and rules you specify.

6. Teach them how to save for themselves.
   In a recent study, 31% of parents said they never talk to their children about household finances.³ But in order for children to appreciate the value of money and the importance of saving it, conversations about money should happen early and often. There are countless resources online and through local organizations. For example, OneMain offers the Credit Worthy Family Resource Center with articles, videos and other resources to give all age groups real-world financial education.

How much should you save for your child’s future?

How much to save depends on your goals for your children. Saving to pay for college education is one of the most common goals for parents. According to one report, to pay for four years at an in-state public college, you would have to invest roughly $300 a month starting at birth to cover tuition, room, board and fees.⁴ And that number rises to $600 per month for private colleges.⁵ But if your goal is simply to provide your child with a nice nest egg to pay for milestone events like buying a house, getting married or starting a business, the savings amount you should aim for can vary. A financial advisor can help you map out a savings plan for your child that fits your budget and goals.

The best way to save for a child’s future is to start now

Whether your child is in preschool or high school, you can always take steps to put them in a position to succeed in the future. Even if your finances only allow you to save or invest a small amount each month, every little bit can get your child closer to achieving financial security in adulthood.

1. https://www.usnews.com/education/best-colleges/paying-for-college/articles/see-how-student-loan-borrowing-has-changed
2. https://www.investopedia.com/articles/retirement/02/111202.asp
3. https://www.cnbc.com/2022/04/06/americans-think-parents-should-teach-kids-about-money-yet-many-dont.html
4,5. https://www.cnbc.com/select/how-much-should-you-be-saving-for-your-childs-college-education/