• Home
  • Start Here
  • Blog
  • Free Resources
  • Shop My Filofax Store
  • Shop TBM
  • Courses

The Budget Mom

Real Women. Real Life. Real Finance

  • Home
  • Products
    • Live Rich Planner
    • Budget By Paycheck
  • Blog
  • FREE RESOURCES
  • COURSES
  • Shop my Filofax store
  • Shop TBM
MENUMENU
  • BUDGETING
        • Categories

        • Budgeting Basics
        • Budget Guides
        • Budget Tips
        • Budget Recaps & Overviews
        • Living on a budget can be as challenging as sticking to a diet or committing to a workout routine. Here are tips to avoid burnout so you can achieve your goals!

          How to Avoid Budget Burnout: 5 Tips to Stay the Course

          When creating a budget, most of us focus on tracking our expenses, but tracking your income is just as important. This includes knowing your starting balance.

          What is Your Starting Balance & Why Does It Matter for Your Budget?

          Most of us have invisible money scripts that hold us back from reaching our financial goals. Learn what the three most common money beliefs are and how you can start taking steps to change them. 

          3 Money Beliefs That Might Be Holding You Back

  • SAVE MORE
        • Categories

        • Cut Expenses
        • Extra Income
        • Saving Tips
        • The true cost of a speeding ticket depends on your location, how fast you were driving, and any previous violations. Learn how much you can expect to pay after receiving a speeding ticket.

          Explained: The Surprising True Cost of a Speeding Ticket

          If you’re looking for ways to save, buying second-hand items might be a good idea. These 17 things are better to buy used instead of new.

          17 Things That Are Better to Buy Used Instead of New

          If you need to earn fast cash, selling household items online is the easiest way to do it. Here are 20 things in your home that you can sell right now.

          Need Cash Fast? 20 Things In Your Home You Can Sell Right Now

  • FRUGAL LIVING
        • Categories

        • Beauty & Health Tips
        • DIY
        • Family & Money
        • Food & Drink
        • Frugal Living 101
        • Household Tips
        • Holidays & Occasions
        • Kids & Money
        • Many people consider going to grad school but wonder if it’s worth the financial investment. Here are five questions you should ask yourself before committing to grad school.

          Should I Go to Grad School? 5 Things to Consider First

          Forget about a New Year’s Resolution! Try setting a New Year mindset instead. It might not seem like much, but your mindset can make or break your financial goals.

          How to Improve Your Financial Mindset to Achieve Your New Year’s Goals

          It’s not too early to start helping your child build their financial future. If you want to help your child start investing, here are the steps you’ll take to get started.

          How Can My Child Start Investing?

  • DEBT & CREDIT
        • Categories

        • Credit Cards
        • Credit Report & Score
        • Debt Basics
        • Get Out of Debt
        • Loans, Etc.
        • It’s easy to swipe a credit card, but paying it off is an entirely different story. Here’s what you need to know about the true cost of buying on credit.

          Revealed: The Ugly Cost of Buying on Credit

          Should You Buy Your Leased Car?

          Collection accounts can be stressful, but you can bounce back. Learn how to handle collection accounts and improve your financial picture.

          Has Your Debt Been Sent to Collections? Here Are Your Options.

  • FINANCE 101
        • Categories

        • Financial Planning
        • Investing
        • Retirement
        • Tax Tips
        • It might be tempting to withdraw investments, especially during times of economic uncertainty. However, most people should avoid touching their investments.

          The ONLY 3 Reasons to Touch Your Investments

          It’s that time of year again! Unfortunately, we’re not talking about the holidays. Now is the time for everyone to file their taxes. Here is what you need to know.

          2021 Tax Season: How to File for Taxes Online

          It’s not too early to start helping your child build their financial future. If you want to help your child start investing, here are the steps you’ll take to get started.

          How Can My Child Start Investing?

Saving For Your Child’s Future

March 15, 2016
FINANCE 101

Share3
Pin152
Share
Tweet
Email
155 Shares
  • Bio
  • Facebook
  • Pinterest
  • Latest Posts
Kumiko Ehrmantraut

Kumiko Ehrmantraut

Some links below are from our sponsors. Here's how we make money.
Kumiko Ehrmantraut
Kumiko Ehrmantraut

Kumiko Ehrmantraut

Kumiko Ehrmantraut

Latest posts by Kumiko Ehrmantraut (see all)

  • Should I Go to Grad School? 5 Things to Consider First - February 25, 2021

Child future full image

Saving for your child's future can be an overwhelming task. Before you start making decisions, I want to make some suggestions first. Make sure you are fully funding your retirement account. Taking care of yourself and your retirement is important. There are always options to save for your child's education, but a successful retirement nest egg requires a lot of time which is an opportunity cost that can never be made up. Since the world will never stop for you to pay for your child's future nor will your financial needs stop, you need to prioritize your finances. Make sure you have paid off debt, especially high interest debt. You will never be fully ready to save if you have portions of your budget being used for interest payments. Make sure you have an emergency fund in place. Being able to cover unexpected costs now will save you from paying more later. Once you have taken care of your retirement, paid off high interest debt and have accumulated an emergency savings, then the question becomes how to save for your child's future. Whether you are wanting to save for a rainy day or educational expenses, there are a ton of options out there.

studying-703002_1920

529 College Savings Plans
These type of accounts were named after Section 529 of the Internal Revenue Code which created these types of savings plans in 1996. If you choose a 529 account, you will be able to set money aside for you child's education and it will grow tax-free. You will not be federally taxed as long as the withdrawals are used for higher education. The great thing about a 529 is that any family member can contribute to the account as a gift. Any family can contribute to a 529 regardless of income, and start with as little as $25.

Answers to common questions regarding 529 College Savings Plans:

What colleges are eligible?
You can see which colleges are considered eligible institutions at the following link – Is your institution 529 eligible?

Does a 529 Plan effect financial aid?
Yes, but it depends on who the account owner is. If the 529 is owned by a dependent student of one of their parents, the assets are considered parental assets on the FASFA. The Expected Family Contribution (EFC) is calculated using a maximum of 5.64% of parental assets. The higher the EFC, the lower the financial aide.

What happens if my child doesn't go to school and never uses the money?
If you the parent are the owner, you can always change beneficiaries. As long as the new beneficiary of the 529 is a family member, the money can be used for qualified education expenses without incurring income taxes or penalties. You can always take a cash distribution, but be AWARE of the consequences. You will have to pay both taxes and a 10% penalty on the earnings if you use the 529 for something other than qualified education expenses. 529 assets can only be used for secondary education.
**Note**
If your child gets a full scholarship to college, the penalty for taking the cash is waived

Open a college 529 savings account in under 5 minutes with CollegeBacker.

child-1031171_1280

Coverdell education savings accounts (ESA)
Coverdells have similar characteristics to an IRA, but are used for educational purposes instead of retirement. You can only make a yearly contribution of $2,000 and the money will grow tax free. You contribution dollars and the interest in the account are not taxed when you make a distribution as long as you use it for education purposes. The great thing about Coverdell accounts is that the assets can be used for elementary and secondary school costs (K-12) as well.

Answers to common questions regarding Coverdell ESA accounts:

What happens if my child never uses the Coverdell?
If money is unused by the time your child reaches 30, the unused portion can be rolled over to another eligible family member who is under the age of 30. If the money is not used or rolled over, the ESA will be distributed and taxable to the child.

Who can contribute?
Family members, friends and even the child for whom the account is being established can make contributions to the Coverdell ESA. Since 2002, small organizations and corporations have even been permitted to make contributions. Keep in mind that there are income limits for the person making the contributions, so you want to make sure to check this out before making a decision.

little-girl-reading-912380_1920

UTMA (Uniform Transfers To Minors Act)
These types of accounts are in a completely different world than the two previous savings options. In an UTMA, a donor makes a contribution into the account and the money instantly becomes property of the child. The UTMA account is established under the minor's social security number but a custodian will manage the account until the minor reaches a certain age (usually 18 or 21).  Any withdrawals from the account must be used for the benefit of the child.

Answers to common questions regarding UTMA accounts:

What if I don't want my child to have full control over the account when he reaches the required age?
Keep in mind that in an UTMA, the assets are the property of the minor, not the parent or guardian. Legally, they have full access to the account once they hit the required age. However, the custodian on the account is the only one who can initiate the distribution. This will give you some control, but if you are not fully confident about your child handling the money you have set aside for them, I would suggest looking into other options.  These accounts are basically used to allow the minor to own the assets without filling out costly trust paperwork or seeing an attorney.

How does an UTMA impact financial aid?
UTMA money is considered assets of the student so it has a very high impact on financial aid eligibility. You can read more about the impact on financial aid here: Impact on Financial Aid Eligibility.

What is the tax treatment for withdrawals?
Any distributions from an UTMA must be reported on the child's tax return and is taxed at the child's rate.

I have only listed 3 ways to save for your child's future, but there are many more options out there. I highly recommend seeing a financial adviser to find which option is best for you. I have worked in the finance industry for almost 5 years, and after talking with my financial adviser I determined the UTMA was the best solution for my family. Personally, the option to financially support my son for things other than college expenses made the most sense. Whatever option you may choose, or not choose, saving for your child's future is more important than ever.

Share3
Pin152
Share
Tweet
Email
155 Shares

Filed Under: FINANCE 101, Investing Tagged With: KIDS, LIFE, SAVING

Previous article:
« Beef & Tater Bake
Next article:
My Favorite Things & The Cheaper Alternatives »

Trackbacks

  1. How Spare Change Is Helping Me Teach My Son about Money | The Budget Mom says:
    July 18, 2017 at 11:41 am

    […] Related: Saving For Your Child’s Future […]

Hello, I'm Kumiko, but everyone just calls me Miko. Welcome to my blog, The Budget Mom. I am an Accredited Financial Counselor® , and mom to a rambunctious boy. Come along with me as I strive to live a life I love on a budget that I can afford. Read more about me.

RECENT YOUTUBE VIDEO

Free Resource Library

Recent Posts

  • Should I Go to Grad School? 5 Things to Consider First
  • The ONLY 3 Reasons to Touch Your Investments
  • Explained: The Surprising True Cost of a Speeding Ticket
  • How to Avoid Budget Burnout: 5 Tips to Stay the Course
  • 17 Things That Are Better to Buy Used Instead of New

Blog Categories

Amazon Associates Disclosure

The Budget Mom, LLC is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.

About

  • Home
  • ABOUT TBM
  • Contact
  • Start Here

Important

  • DISCLAIMER
  • PRIVACY POLICY
  • Subscribe

Favorites

  • YouTube
  • Blog
  • Live Rich Planner
  • Budget by Paycheck

Start With My Friday Newsletter

Copyright ©2021, The Budget Mom®
This website contains affiliate links, which means that if you click on a product link, I may receive a commission. This website is a participant in the amazon services llc associates program, an affiliate advertising program where I earn advertising fees by linking to amazon.com.