When it comes to saving money for your child, you have several options to choose from. Depending on what you are trying to accomplish will help you decide what option is the best for you.
- Do you want it to be solely used for college?
- Do you want the child to assume right to the money then they reach 18?
- Do you want tax deferral?
For parents that college isn’t the primary focus and they don’t mind if the kids gets control of the the money when they become a legal adult, then you may want to consider opening a custodial account under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). With these accounts, you appoint a custodian, which is typically the parent. Once the child reaches “age of majority”, then it’s legally their money and they get to do with it what ever they please.
Saving Money for Your Kids
Establishing UGMA and UTMA accounts means designating specific investments for a child’s benefit. By doing so, you may be able to reduce your estate and the taxes you owe on your investment earnings or capital gains. But these accounts also have certain drawbacks.
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