Investments for Kids

Every parent and grandparent wants to see their child have the best possible start in life and hopes for a bright future. Fortunately, there are actions we can take now to help make that bright future a reality. One such action is to create a financial plan which begins when a child is young and can help them make major decisions later in life—such as choosing a college or purchasing a car. There are several types of investments which are designed to ensure some stability and control in a child’s financial future.

Coverdell Education Savings Account (ESA)

A Coverdell Education Savings Account (ESA) is an investment which is held in the child’s name and social security number with an adult acting as the responsible individual. While the child may essentially own the investment, the adult is in charge of monitoring and managing the account and signing for any changes or distributions. All distributions must be used for educational purposes, such as college or private school tuition, books, or school-related activities. Although, an ESA may impact a minor’s college financial aid package since funds are held in the child’s name, and these accounts also have an annual contribution limit of $2,000.00.

Uniform Transfers to Minor Act (UTMA)

If you are interested in saving for a child’s future, but not solely for educational needs, you may want to consider a custodial account such as the Uniform Transfers to Minor Act (UTMA). This type of investment is also held in the child’s name and social security number with an adult custodian who is responsible for any required tax reporting. In addition, there are no contribution limits for a UTMA, and withdrawals can be used for any purpose which benefits the minor. Once the minor reaches age 21, they become the sole owner. However, this type of investment may also impact a minor’s college financial aid package.

Be a Beneficiary

Another option for financial planning is to open a savings account, CD, or other investment in a parent or grandparent’s name with the child named as beneficiary. Here is an opportunity to invest funds without contribution limits or any impact on the child’s potential financial aid. When the minor has reached adulthood, they can be added as a co-owner to help manage the investment or ownership can be changed to their name alone.

To learn more about these options and discover which works best for you and your child’s needs and wants, contact a competent financial advisor. Help prepare your children and grandchildren for financial stability today and tomorrow by setting up an investment account for them.