You may don’t know, but there is an option allowing you to open a savings account for your kid. Straight away, we can see numerous advantages of the account. First one is the ability to save money for your loved one, obviously. However, this type of account boosts the possibilities and allows for all of the family members to save money for a child.
Requirements for opening a child savings account
There is just one condition in a matter of fact. A child must be age 7 or older to have the account in his name. Other than that, there are no limitations nor any individual requirements. It is also possible to have an account for children below age 7, but it cannot be in their name.
Per a year, more precisely for 2017/2018 tax year, parents can invest up to $6000 of tax-free money. Of course, it depends on a state, but this is the average amount you can save.
Child funds were an excellent choice, and most of you use them even today, but they usually have lower interests, which made them the second best option. Luckily, now is possible to transfer the funds from the child fund to the personalized savings account, without loss of any tax benefits.
Parents will have the full control over the account, and they decide when a child gets an opportunity to use the funds. Most parents and experts claim the suitable age is 16, but it is an individual choice.
Amount of money to save
Obviously, there are no rules here, and you can save as much or small as you want. However, most of these accounts do require initial balance, which is usually around $1.
After the account is opened, you will have to make specific and pre-determined monthly payments as agreed, or amount of money you can direct for this account. Most banks will require payments of at last $10, for accounts which don’t have a strict rate. If it has, then the specified amount of money is a must.
Same as adults, children are eligible for taxes. In this situation, only accounts which make more than $17.000 per a tax year, from interests will have to pay taxes. All others, are not eligible to pay taxes, which is the most common situation.
Parents should be aware that all earnings from the interests when they are owners of the children’s accounts, who surpass $150 are treated as income. As such, taxes should be paid.
We believe that children should have accounts on their names, due to the fact there are plenty of tax-related advantages and additional benefits which may be more than just useful.
Four types of savings accounts for children
Not all accounts are the same. Here we have four different kinds, all completely different and suitable for a particular saving purpose or something else. They are:
- Easy account- Here parents and children can deposit money and later withdraw it as they wish. It is the most versatile and probably the simplest type of an account out there.
- Notice accounts- Think of them as more advanced accessible account type. There is also the possibility to deposit any amount of money you want, but usually, you have to wait three months before that money becomes available. Interests are higher than with secure accounts.
- Fixed amount accounts- As the name suggests, the amount of money which should be paid in is pre-determined, but not necessarily. A good thing is the interests, which is higher than with first two choices and fixed. The agreements are usually between 1 and five years.
- Regular account- This is the most generic type of savings account for children. You will pay a monthly payment depending on the agreement, usually between $20 and $30. The account will be active for 12 months and after that money is yours to withdraw. You cannot access it before 12 months, and after that, the account will be closed.
Having a savings account for children is more than just important. If we know that the financial situation is going to be more severe in the future, they are simply something worth considering. The main reason to have one is the ability to provide something useful and beneficial to your child without the need of spending a high amount of money at once. For those with smart ideas, this may be the money which will make them millionaires.