Simone and I recently welcomed our first child into the world. He’s a little over a month old now and has instantly become the light of our lives. People are so right when they say there is no other love like the love for your child. There is an instant need to protect him and keep him safe. Since he’s come into our lives I’ve been thinking a lot about his future (yes, I know it’s too soon to think about his future but it’s happening!). I hope to raise him right and give him a ton of options so his future can be happy and bright. One way to do that is to start saving now for him. Having options is not always cheap…
So, I started to research different savings options. There are many options out there but I decided to take a closer look at 529 accounts and kids savings accounts. Here’s what I found.
529 accounts are investment accounts used primarily for costs related to higher education including tuition, books, supplies, equipment, room and board, etc.
This type of account can be opened by anyone, not just parents, as long as you are a U.S. citizen or resident alien. You just need to designate the future student as the beneficiary.
There are many tax advantages on the federal level and some state levels too.
If the beneficiary decides later on not to attend higher education you can withdrawn the money but you have to pay a penalty (in NYS it’s 10%) and federal and state income tax.
For more information on 529 accounts, check out the SEC website.
Kids Savings Accounts
Most of us probably already know what a savings account is so I won’t bore you with those details. The main things to know are you can use the money for whatever you want and the interest rate is important.
What We Decided
The 529 account is very appealing if my son decides to attend higher education later on. I am definitely not planning to push him into attending school though unless he really wants to. So, we ultimately decided to open the kids savings account.
I looked around at various kids savings accounts. The one that made the most sense for us was with Capital One. There are no fees, no minimums, and the current interest rate is 0.75% APY which is not bad compared to other rates today. They also have kid friendly tools like a savings goal feature that includes charts and percentages to teach kids how close/far away their savings goals are.
How are you saving for your kids’ future?