Starting a Savings Account for Children

by Catherine Rein
(last updated April 24, 2009)

A friend recently told me that her son's college tuition is expected to exceed $60,000 for the 4-year public school he is targeting in 10-15 years. She's starting early by opening a savings account for her son. She's looking for high market returns and will likely be investing in stocks since she has over 10 years before the money will be needed.

If you are looking for an easy way to save for your child's college education or other expenses, there are lots of choices available. There are advantages and disadvantages to all the plans available and it is important to talk to a tax advisor if that is one of the important considerations to you. Consider the following types of accounts when you are researching college savings programs for your children:

  • Custodial Savings Accounts. One easy way to start a savings account for your child is with a custodial savings account. A custodial savings account is in your child's name, but you are able to control how it used until your child reaches legal adulthood (18 to 21, depending on your state). You can deposit as much as you want into the savings account and other family members such as grandparents can also. You can make withdrawals at any time (for your child's benefit) without paying penalties.
  • 529 Plans. There are two categories of 529 plans, college savings plans and pre-paid tuition plans. Both categories are sponsored by states, state agencies or educational institutions. Pre-paid tuition plans lock in future tuition rates while college savings plans are based on market returns. Most 529 plans can be used to attend college in any state no matter which state plan you choose.
  • Coverdell Education Savings Account. The Coverdell Education Savings Account isn't for everyone, but many families will find them appealing since they allow you to save money not only for college, but also for elementary and secondary school expenses. Tax law does prohibit ESA funding once the beneficiary reaches age 18. While the Coverdell can be used in addition to a 529 plan, it is limited to $2,000 per year in contributions.

No matter which plan you choose, consistency is key. Automate your savings and contribute an equal amount every month. Don't try to time the market, pick solid investments that will grow over the long term. With a plan and consistent savings you'll meet your college savings goals with time to spare.

Author Bio

Catherine Rein

MORE FROM CATHERINE

Should I Get Out of the Stock Market?

Investing in the stock market has historically outperformed other investments such as bonds or CDs. There are three areas ...

Discover More

Living on a Fixed Income

Living on a fixed income is a challenge. If you or a loved one is living on a fixed income it is important to stay on top ...

Discover More

What is Tax Planning?

Tax planning is a great way to minimize federal income tax liability. There are several legal methods of postponing ...

Discover More
More Money Tips

Saving for a Goal

For most people, the good life doesn't come all at once. You can save up for it, though. Here's how to do it.

Discover More

Saving Money

The premise of saving money is simple. Spend less. How can you cut monthly expenses to find money to save?

Discover More

Saving for College

College is more a social necessity than ever and the financial costs are high. Saving for college, while sometimes an ...

Discover More
Comments

If you would like to add an image to your comment (not an avatar, but an image to help in making the point of your comment), include the characters [{fig}] in your comment text. You’ll be prompted to upload your image when you submit the comment. Maximum image size is 6Mpixels. Images larger than 600px wide or 1000px tall will be reduced. Up to three images may be included in a comment. All images are subject to review. Commenting privileges may be curtailed if inappropriate images are posted.

What is 3 + 1?

There are currently no comments for this tip. (Be the first to leave your comment—just use the simple form above!)