Why I Should Start Saving for my Child or Grandchild Today
Today's college education expenses are higher than ever, and the cost is only projected to continue rising. That means that a child born in 2020 could expect to spend over $200,000 in the pursuit of a standard bachelor's degree at most universities under the continuation of the trends that have defined the past thirty years of tuition growth.
Saving for the future is more important than ever, but those rising expenses are also leading many to re-evaluate college as an option. The alternatives in various trades still require training, apprenticeship, and investment capital for professional tools and equipment. That means it's still important to save for the future, no matter what path your child or grandchild takes.
Putting funds into a basic child's savings account demonstrates good habits and strikes up conversations about financial literacy. Many banks and credit unions have programs set up to get children off to a great start, like ProFed's Great Start savings account. As the child grows and becomes more independent, the Great Start savings account provides the basis for learning about basic financial literacy. It also provides a forum for kids to practice interacting with credit union staff when making deposits and withdrawals under the supervision of parents or guardians.
If you're looking to set aside money for college in addition to teaching basic financial literacy with a child savings account, you'll want to check out the various state programs that provide tax incentives and other advantages to help your efforts. Those are widely referred to as 529 plans. You might also want to check out custodial accounts and trusts as an option, especially if you're a grandparent.
State-level plans for college savings are typically tax-exempt, providing a faster path to save the amount needed to cover a college education. They also have high contribution limits with unlimited recipients allowed under the program. For big families with significant planning needs, this is a huge incentive to save over debt financing for parents.
In addition to the tax incentives for parents, many wonder how much impact 529 college savings plans have on financial aid. While a 529 savings plan requires the purpose of the savings to be used for qualified higher education expenses for the beneficiary to get the tax advantages, the assets in the account are treated as the account owners. Learn more about 529 plans at collegesavings.org. Before investing, it's important to read the Disclosure of any plan fully.
You can also consider an educational savings account, which has federal tax benefits but no state tax incentives. Most of the time, a 529 plan limit should more than cover your needs, but it's helpful to consider all your options.
If you're looking to help children save without requiring the funds be put toward educational expenses, the best savings option for kids are UGMA/UTMA accounts. These accounts allow grandparents and parents to gift assets to minors while managing the account until the child reaches adulthood. Assets can include real estate, investments like mutual funds or stocks, and cash savings. Certain tax responsibilities exist for the child as the owner of the funds. For example, UGMA funds do count as an asset owned by the child under financial aid calculations and can impact the student's participation in some programs.
These accounts are probably the best option when you want to provide for a wide range of possibilities, because they can be used just as easily to invest in a business or an apprenticeship into a chosen trade as they can be to a college education. They're becoming more and more popular with families that want to allow flexible decision making to be made in the future.
So, what credit union has the best savings account for kids? There are a lot of them with top tier programs, but if you're looking for the best of the best, just look for the educational materials they offer to help you teach financial literacy and the options they have to help you reach your goals as you plan for the future. ProFed offers Money Sense, a free financial literacy program that provides learners of all ages education for the real world through innovative and scalable digital learning platforms. The Money $ense program can help assist in financial planning for kids and grandkids in your life while helping you teach them to make wise decisions with money when they gain access to it. Financial educational programs are more important than ever in today's world!
Open your child or grandchild’s Great Start Savings with ProFed Credit Union today!