Every parent wants to give their kids a strong head start in life, whether that means paying for their college or funding a savings account.
But let's be real - kids are expensive, and it can be hard to plan for their college or savings. According to a government report, it can cost around $233,610 to raise one kid, though when you factor in inflation, that number can quickly jump up to $300,000. Oh—and that doesn't include college expenses.
But don't worry: saving for your kid's future isn't impossible. If you build the right strategy and target the best savings accounts, you can provide them with a massive amount of financial aid. In particular, these seven things will help you start saving for your kid's future now.
1. Do the Basics: Get a Will & Life Insurance
First things first, provide your kids (and your spouse) with financial support if you were to pass away. Nobody likes to imagine their death, but right now it's not about that: it's about the quality of your kid's lives in your absence. If you haven't already, make a will (or update yours) and include your kids as beneficiaries. Then, get life insurance. With life insurance, you'll help your spouse continue saving for your kid's future, as well as give your kids a strong financial back-up plan.
2. Contribute to a 529 College Savings Plan
A 529 College Savings Plan is a state-sponsored fund that's linked to investments (typically mutual funds). And the best part—the money you contribute grows tax-free. As long as you use the money on qualified educational expenses, such as tuition, room and board, and textbooks, you'll be able to withdraw the money tax-free, too.
Don't underestimate the power of a 529 Savings Plan: optimize your account and you can send your kids to college without forcing them to take out student loans.
3. Open a 529 Prepaid Tuition Plan
Don't care to invest your money in a college plan? Well then—consider a 529 Prepaid Tuition Plan. With this plan you pay for your kid's future tuition now, locking in today's tuition rate.
Why would you do that? One word—inflation. As tuition costs go up, you won't have to worry about paying more, which can save you lots of money in the end.
Just make sure you know which states offer prepaid tuition plans, as not all do. As of right now, here are the twelve states that offer 529 Prepaid Tuition Plans:
4. Put Money in a Health Savings Account (HSA)
Got a high deductible health insurance plan? If so, consider opening an HSA for your dependent kids. They can make their own contributions, or you can contribute for them (up to $7,200 for family coverage in 2021). And it grows tax-free. As long as the money is used on qualified medical expenses, your dependent kids can withdraw it tax-free, too.
5. Save Money in a High-Yield Savings Account
Don't overlook the traditional way of saving money: the piggy bank. But instead of using a ceramic pig, put that money in a high-yield savings account. Even though you won't make a ton of money off interest, you'll have a secure place to keep the money for your kid's future.
6. Open a Custodial Account
Aren't sure if your kids will pursue higher education? Well then, consider opening a custodial account.
A custodial account is a savings account that you and your spouse manage until your kids become responsible enough to take it over. What's great about custodial accounts is you can invest the account's money in mutual funds, stocks, bonds, or other investments, which can help you teach invaluable investing lessons to your kids.
7. Go the Extra Mile: Give them a Roth IRA
Lastly, if you have teenagers who are earning income, give them the gift that keeps on giving: a Roth IRA. With this account, your kids can draw money tax-free in retirement, or they can even use it on qualified college expenses without getting penalized.
Need Help Saving for Your Kid's Future?
With so many expenses to manage, it can be hard to save for your kid's future. If you're having trouble finding space in your budget, try our free tool, Thinkflow. Thinkflow helps you solve cashflow problems by giving you a clear picture of your financial future. And if you find no room in your finances to save for your kid's future, Thinkflow will even help you find side gigs and secondary income options to increase your cashflow.