4 – Saving Account Types for Children

Are you ready to open a savings account for your child?  In the beginning, I recommend opening an account at your current bank.  This makes transferring funds to the account simple and quick.  The type of account you open will depend on the financial institution.  Most banks require to have a parent or guardian on the account, who may need to be an owner or co-owner of the account with the child until the age of 18.  There are 4 different types of savings account available for minors.  The most common types are custodial accounts, Uniform Transfer to Minors Act (UTMA) Accounts, and joint savings accounts. Here are 4 – Saving Account Types for Children:

Custodial Accounts

A custodial account is typically a savings account that an adult controls for a minor. Some custodial accounts are more restrictive than other savings account options. For example, the money you put in can be irrevocable. You may not change your mind and take the money back later on. Some custodial accounts may also restrict when you or your child can access the funds.  There are custodial accounts without restrictions and withdrawal limits.

Uniform Transfers to Minors Act (UTMA) Accounts

With a UTMA account, you can transfer virtually any kind of asset to your child’s account. UTMA accounts also offer a relatively long window for when kids need to pull money from them. Depending on the account and the state they live in, a beneficiary may have until they’re 21 or 25 to withdraw all their funds from it.

Joint Savings Accounts

An alternative to custodial accounts and also a more flexible savings option is to open a joint savings account with a child. This type of savings account may also allow kids to have easier access to the funds. For example, some joint savings accounts may even offer debit cards for kids. However, not all banks allow minors on joint accounts.

Educational Savings Accounts

Another savings option is to open a 529 plan that’s designed specifically for educational expenses. A big benefit to 529 plans compared to other long-term savings accounts, such as custodial accounts, is that they offer special tax benefits for depositors. For example, money saved in a 529 plan grows tax-free. As long as you use it to pay for qualifying educational expenses, you won’t have to pay taxes on the account’s earnings. Some states may also offer other tax breaks, such as allowing you to deduct the savings you put in.