Saving for your child’s future can feel overwhelming. From deciding which goals to prioritize (College? First home? Something else entirely?) to choosing the right accounts to meet those goals, it’s easy to get lost in the weeds. And then there’s the emotional side of it all, wanting to give your kids the best start in life without compromising your financial security.

The good news? There’s no one-size-fits-all answer, which means you have plenty of flexibility to craft a plan that works best for your family. Whether you’re aiming to build a college fund, teach your kids financial responsibility, or simply set them up for a brighter tomorrow, the key is starting somewhere, even if it feels small.

Nerd Note: Saving just $100/month from your child’s birth can grow to nearly $38,000 by the time they turn 18, assuming a 7% annual return. That’s the magic of compound interest at work!

Below, we’ll demystify the account options available to you, share expert tips, and help you lay the foundation for raising financially savvy kids.

The Four Guiding Principles of Your Child’s Savings Plan

Before diving into specific account types, it’s helpful to establish a few basic principles to guide your decision-making:

1. Stabilize Your Own Finances

Think of this as putting on your oxygen mask before assisting others. Saving for your child’s future is admirable, but not at the expense of your own financial stability. Prioritize building your emergency fund, paying down high-interest debt, and contributing to your retirement first. After all, your kids can borrow for college, but you can’t borrow for retirement.

2. Start as Early as Possible

Compound interest is your best friend. The longer your money has to grow, the bigger the payoff. Even small contributions made early can outpace larger, late-start savings. 

Nerd Note: Saving $6,000/year for 18 years at a 7.5% annual return could grow to $214,000. Waiting until age 9 to start, even doubling contributions, would result in “just” $148,000.

3. Progress Over Perfection

Life (and parenting) is expensive. Daycare costs, medical bills, and extracurricular activities don’t leave much wiggle room for savings. And that’s okay! Do what you can. Set small goals and adjust as your financial situation improves over time.

4. Mix and Match for Flexibility

There’s no rule that says you must stick to just one account or savings strategy. Use a combination of tools to meet both short- and long-term needs. And don’t be afraid to switch gears as circumstances change, adaptability is key.

Nerd Note: Families who balance flexibility with focused saving tend to save consistently rather than waiting for “perfect” scenarios.

Account Types to Consider for Your Child’s Financial Future

Different accounts serve different purposes, and each has its own advantages and potential drawbacks. Here’s a breakdown of five popular options to help you decide:

1. Bank Accounts

A simple and safe way to save for short-term goals, or to teach kids the basics of money management.

What They Are 

Savings accounts, high-yield savings accounts (HYSAs), and certificates of deposit (CDs) offering FDIC insurance that are designed for predictable and accessible savings.

Best For

• Short-term goals within the next 4 years (e.g., a family vacation or summer camp).
• Building saving habits and teaching kids about basic money management/saving.
• Extra conservative families that prioritize protection over all else.

Drawbacks

• Low returns that may not outpace inflation.
• Limited use for long-term goals like college.

Myths Busted

• “It is the safest for long term savings”: The difference between investing in stocks vs. cash can be sizeable over time.
• “This will help keep what I have safe”: Inflation is the shadow cost of any safe asset, with cash being the safest, you are fighting a battle to make sure the bank savings keeps up with this cost.

Tips

• Pair a bank account with a piggy bank to make saving tangible for younger kids.
• Use High Yield Savings for money you won’t need immediately.
• Think thrice when considering using this type of account for longer term savings.

2. 529 Plans

What They Are

The gold standard for education savings, offering tax advantages tailored for qualified expenses. State-sponsored tax-advantaged accounts for K-12, college, and eligible education expenses. Contributions grow tax-free.

Best For

• Parents focused on education savings who want to take advantage of tax benefits.
• Those in higher tax brackets who value tax savings.
• Those who have other loved ones who may use the money if the child does now.
• Parents looking to maintain control over the funds.

Drawbacks

• Limited flexibility if funds aren’t used for education. (Beginning in 2024, unused funds can be rolled into a Roth IRA.)
• Low tax bracket families will not benefit as much from the tax free growth and may otherwise need the funds for other expenses in the future.

Myths Busted

• “529 funds can only be used for college”: These plans may be used for K-12, apprenticeship programs and some student loan payments.
• “This account will severely hurt changes for financial aid”: Assets owned by parents have a minor impact on financial aid calculations since only up to 5.64% of the balance is included.

Tips

• Choosing a plan: Compare both in-state and out-of-state plans for the best investment options, tax benefits and lowest costs.
• Overfunding concerns: Any unused funds may be used by changing the beneficiary to another qualifying family member, paying down student loans up to $10,000 or leaving for future generations.
• Generational Funding: Front-load contributions early to maximize growth potential. These accounts can be supercharged for future generations through a strategy known as the “Dynasty 529”. For more information on this see this link.

For more information on planning for college and 529 vehicles, see our post here. 

3. UTMA/UGMA Accounts

What They Are

Teach accountability and flexibility with funds earmarked for your child’s benefit. Custodial accounts in a child’s name. Funds transfer to them at the age of majority (18–21, depending on the state).

Best For

• Saving for non-education goals like a car, wedding, or house.
• Potentially taking advantage of lower tax rates on investment earnings.
• Making larger gifts for their future benefit (up to $19,000 per year in 2025 or $38,000 for married couples) without needing to file a gift tax return.

Drawbacks

• Assets impact financial aid eligibility more significantly than a 529 plan.
• The child gains full control at adulthood, requiring careful consideration of their financial maturity.
• Once the funds are in the account, the beneficiary is locked in and cannot be changed.

Tips

• Start small to test responsibility upon turnover.
• Leverage these accounts for meaningful gifts or lessons in managing money.
• Use this as a intermediate term savings vehicle after savings account to save for a future goal such as a car, college costs, or big trip.

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Nerd Note: The famous "Marshmallow Test" who were able to wait longer for a second marshmallow tended to experience greater achievements later in life. This insight can raise concerns when considering a UTMA/UGMA account, as the beneficiary gains full control of the assets at the age of majority. If they struggle with impulsive financial decisions or lack experience in managing larger sums of money, the account may very well be wasted away.

4. Taxable Brokerage Accounts

What They Are

A versatile option for families who value flexibility. Investment accounts for stocks, bonds, or ETFs that aren’t limited by purpose or age.

Best For

• Parents unsure about their child’s future needs.
• Families wanting flexible, tax-efficient savings options.
• Retaining full control over the funds.
• Families who may themselves need the funds for their future retirement or otherwise.

Drawbacks

• No education-specific tax breaks.
• Still an asset of the parents for future gift and estate tax purposes.

Tips

• Create a separate account for child-related savings to stay organized.
• Choose tax-efficient investments to minimize liabilities.

5. Roth IRA for Kids

What They Are 

A retirement head start for kids with earned income (e.g., babysitting, lawn mowing). Post-tax retirement accounts that grow tax-free. Contributions can be withdrawn anytime without penalties.

Best For

• Kids with taxable earned income.
• Families looking to teach the value of long-term saving.

Drawbacks

• Requires children to have legitimate earned income up to an amount of contribution.
• Funds are less accessible for near-term needs.
• No immediate tax benefits.

Tips

• Consider matching your child’s contributions to encourage saving.
• Get creative with employment, like hiring your little one in the business for help around the office.
• Keep adequate records of earnings to justify the contributions or risk having them be withdrawn down the line.
• Use this as a teaching tool to illustrate the power of compound interest.

Nerd Note: Ten extra years of compound growth could more than double retirement savings. A $7,000 contribution at age 15 grows to over $260,000 by retirement (assuming a 7.5% return).

Finding the Right Mix for Your Family

Still not sure which accounts to choose? Consider these scenarios:

• Education-Driven: Pair 529 plans for tuition with a taxable brokerage account for flexibility in graduate school or post-college expenses.
• Uncertain Families: Start with a brokerage account for broad flexibility and move funds into 529 plans later, if the educational path becomes clearer.
• Entrepreneurs in Training: Combine Roth IRAs for kids with custodial accounts (UTMAs) to teach financial and work ethic skills.

The best approach often involves a mix of options, allowing you to adapt as your child grows and their needs evolve.

Nerd Note: Successful savings strategies prioritize consistency. It’s better to save small amounts regularly than to wait for the “perfect” time to start.

Start Building Your Child’s Financial Foundation Today

Planning for your child’s future doesn’t have to be overwhelming or perfect, it just has to start. Every dollar saved now is one less they’ll need to borrow later, and the sooner you begin, the greater the opportunity for growth.

Not sure which account mix is right for your family? At HealthyInsights, our planners are here to guide you through the options and create a personalized savings plan tailored to your needs.