Saving for Your Child’s Future: College Funds, Trusts, and Investments

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Raising a child brings many joys, but the cost of doing so has only risen in recent years.

According to the U.S. Department of Agriculture, a child born to a middle-income family in 2015 cost approximately $12,980 to $13,900 annually. In 2022, that same child cost $16,007 to $17,141. [1]

As expenditures related to childcare, education, transportation, food and more grow, it’s easy to forget about saving money for your child’s future. However, ensuring that your child’s future is safeguarded is incredibly important. To better set your child up later in life, check out these avenues of saving.

529 Plans

If you’re looking to save specifically for your child’s future years at college, many financial experts suggest a 529 plan.

There are two types of 529 plans. A 529 prepaid tuition plan allows you to prepay tuition at today’s rates at select public and private colleges and universities. This can help mitigate the risk of rising tuition costs in the future, but this plan only goes towards tuition. The 529 prepaid tuition plan does not cover room, board, or textbooks.

Should your child choose not to attend the institution previously selected under the 529 prepaid tuition plan, the money transfers over to other colleges or universities, but you won’t enjoy the same guaranteed tuition rate.

Alternatively, a 529 savings plan is much broader in what you can save for. This plan allows you to save for qualified college expenses, which includes room, board, textbooks, and materials in addition to tuition costs. Withdrawals from a 529 savings plan can be used at most colleges and universities, including graduate schools and some oversea universities. [2]

While many states offer 529 savings plans without residency restrictions, you should still be sure to explore your state’s specific plan to ensure you’re taking advantage of any potential tax benefits.

Savings Account for Kids and Teens

It’s important to teach healthy financial habits early on, and starting a savings account for your little one is one such way to do so. Banks and credit unions often offer savings accounts designated for kids and teens that parents can co-own.

When selecting a savings account for your child, it’s important to factor in interest rates. Start saving early enough, and money set aside for your child could grow exponentially. If possible, look for an account with an APY of 3.0% or above. Additionally, you can opt for a custodial account as well, which will only allow your child to make withdrawals when they turn 18. Withdrawals can be made from a traditional savings account at any time.[3]

Trust Account

A trust account, commonly referred to as a trust fund, is a legal arrangement in which funds or assets are held by a third party for the benefit of a beneficiary. A trust account can offer control over disbursement amounts, the age when the money is disbursed and more. The money or assets can be disbursed in a lump sum, or in multiple payments. You can even stipulate what you want the money to be used for in your trust.

There are two different kinds of trust accounts: irrevocable trusts and revocable trusts. Assets in an irrevocable trust are protected, but the terms of the trust cannot be changed after you create the account. In a revocable or living trust, you may change the terms of the trust at any time, but the account will not be protected from seizure by creditors or other parties.[4]

If you’re interested in creating a trust account for your child, consult with an attorney and find a financial advisor to manage the money.

Investment Accounts

Investing early can be key to retiring on time or even ahead of schedule, so the sooner you start investing in your child’s future, the better. If your child is old enough to have taxable wages – whether that be a part-time job, mowing lawns for the neighbors, or babysitting – they’re eligible to open a custodial IRA.

A Roth IRA allows investors to make tax-free contributions and may be an ideal type of account for a young worker.

If your child is not old enough to earn taxable income, you can still open a custodial brokerage account for them in your name. Your child will automatically take control of the account when they turn 18 or 21 years old, depending on applicable state laws.

No matter what route you go, it’s important to remember to save for your child’s future as much as you can. Put away what you can afford and try to teach them fiscally responsible habits early on in life – they will carry them the rest of their lives.

The opinions contained in this material are those of the author and not a recommendation or solicitation to buy or sell investment products. This information is from sources believed to be reputable, but Cetera Advisor Networks LLC cannot guarantee or represent that it is accurate or complete. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.

Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investment in any state’s 529 plan.

[1] “How much does it cost to raise a child?” USA Facts, 14 May 2023. Accessed 10 Jan. 2024.

[2] “Updated Investor Bulletin: An Introduction to 529 Plans.” U.S. Securities and Exchange Commission, n.d., Accessed 10 Jan. 2024.

[3] Gran, Ben. “Get Your Children Saving: A Guide to Kids’ Savings Accounts.” Forbes, 18 Jan 2023. Accessed 10 Jan 2024.

[4] Bryant, Sean. “How Trust Funds Can Safeguard Your Children.” Investopedia, 31 Aug. 2021. Accessed 10 Jan. 2024.

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