As parents, we think a lot about our children’s futures. We want them to grow up with strong values, solid life skills, and a heart for the Lord. But let’s be real—financial wisdom is one of those life skills that often gets overlooked.
That’s why today, I want to talk about something near and dear to my heart: setting up financial accounts for your kids.
As a CERTIFIED FINANCIAL PLANNER® practitioner, turned homeschooling mom, I believe financial stewardship starts early. And the good news? You don’t have to be an expert to make wise money moves for your family. Whether you’re thinking about short-term savings, college planning, or even long-term wealth building, there’s an account that fits your needs.
Let’s walk through some of the most common options so you can make informed, intentional decisions for your children’s financial future.
1. High-Yield Savings Accounts: Perfect for Short-Term Goals
A high-yield savings account is a simple but powerful way to save for short-term needs like summer camps, extracurricular activities, or even their first car. These accounts work just like a regular savings account but earn a higher interest rate, helping their money grow over time.
Here’s a list to help you get started — earning 4-5% is a good place to start (as of the time of the writing of this post). Please keep in mind that interest rates change constantly.
One way to make this fun? Involve your kids in setting a savings goal! When they see their money grow, they’ll start to grasp the value of patience and smart financial choices.
2. Dependent Care FSA: A Hidden Tax Benefit for Parents
If you have children under 13, a Dependent Care Flexible Spending Account (FSA) is worth considering. This tax-advantaged account helps cover a portion of qualified childcare expenses that allow you to work, reducing your taxable income (which means more money stays in your pocket!).
Ask your employer if they offer a Dependent Care FSA – usually the maximum amount per family is $5,000 per year. So it’s not designed to cover all of your expenses, just a portion of them.
There’s a catch, though—it’s a “use it or lose it” account, meaning you need to spend the funds within the year. So, if you’re using this, make sure you’re staying on top of reimbursements.
3. 529 Plans: A Powerful Way to Save for Education
If you’re thinking ahead to your child’s education, a 529 plan is one of the best tools available. These accounts allow money to grow tax-free when used for qualified education expenses, including private K-12 tuition (up to $10,000 per year) and college costs.
And if your child doesn’t end up using all the funds? No worries! Thanks to the Secure Act 2.0, up to $35,000 can now be rolled into a Roth IRA, giving your child a great head start on tax-free retirement savings. Keep in mind, the account must be opened for at least 15 years in order to qualify for this benefit. So a good idea to open and fund a 529 Plan while your child is young!
Choosing the Right 529 Plan
Not all 529 plans are created equal. If you’re a resident of a state that offers a tax deduction for contributions, it may be worth using your state’s plan to take advantage of that benefit. Only four states—Colorado, New Mexico, South Carolina, and West Virginia—offer a deduction for the full contribution amount, while many others have limited deductions. Be sure to check your state’s rules to maximize your tax benefits.
If your state doesn’t offer a tax deduction (or has high fees), you may want to consider a low-cost, highly rated plan like Utah’s My529 Plan, which offers flexible investment options and has consistently received top ratings from Morningstar.
4. Custodial Brokerage Accounts: A Flexible Option for Investing
If you’d like to introduce your child to investing, a custodial brokerage account (sometimes called a UTMA or UGMA) can be a great option. You manage the account while they’re young, but once they reach adulthood, the funds become theirs.
This account is great for a young adult “starter fund” – think non-college expenses like a first car, starting a small business, or a down payment on a home.
Just keep in mind the tax rules—investment earnings over a certain threshold ($2,600 in 2024) may be taxed at your tax rate instead of your child’s lower rate, a rule known as the kiddie tax. This is something to consider if you’re investing significant amounts in this account.
And remember, once your child reaches adulthood (typically 18 or 21, depending on your state), they gain full control of the funds—so it’s wise to start instilling good money habits early!
5. Custodial Roth IRA: A Powerful Tool for Generational Wealth
This is one of my favorite accounts for kids! A custodial Roth IRA allows your child to start investing for the future while their money grows tax-free. The only catch? They need earned income.
This account is a hidden gem for long-term wealth building. If your child starts early, they could be on track for a financially stable future before they even graduate high school. Like the custodial brokerage account, the Custodial Roth IRA turns into a Roth IRA owned by your child when they reach the age of majority (usually 18-21, as determined by your state).
6. Life Insurance for Kids: Is It Necessary?
You might have heard about life insurance policies for kids, and while they’re not typically essential, there are situations where they could make sense—like if your child has a medical condition that could impact future insurability.
Most of the time, I’d rather see families prioritize investing in high-yield accounts, 529 Plans, or Roth IRAs, where possible. Life insurance for college savings is not my favorite strategy. But if future insurability is a concern, it could be worth exploring for that purpose.
Choosing the Right Accounts for Your Family
When it comes to financial planning for our kids, there’s no one-size-fits-all approach. The best accounts for your family will depend on your goals, values, and what makes the most sense for your current season of life.
At the end of the day, teaching our kids about money isn’t just about numbers—it’s about stewardship. Everything we have comes from the Lord, and when we handle our finances wisely, we model that truth for our children.
Not sure where to get started?
Here are some custodians I like, but I am also a big believer in keeping things simple, so don’t overanalyze this decision!
- High Yield Savings Accounts – use a site like Bankrate.com or Nerd Wallet to search for the best options
- UTMA and/or Custodial Roth IRA – my go-to favorites for low-cost and ease-of-use platforms include Vanguard, Fidelity and Schwab
- 529 Plans – I like Utah’s 529 plan (aka My529), if you live in a state that does not offer a state tax deduction.
I’d love to hear—do you already use any of these accounts for your kids? Or is there one you’re planning to start with? Let me know in the comments!
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