Investing in your child's future is a wise thing to do. If you are planning on your young child attending college, the earlier you begin saving the better. Although private colleges are expensive, according to College Board over half of undergraduates attend a university whose fees are under $9,000 a year. Even if your child does not attend college, investing in his future teaches him good financial management and planning. Take time to make an investment plan that works for you and your child.
Step 1
Open a Uniform Gift to Minor Account. Start the account when your child is young to reap the benefits of compounding interest. Set up regular payments through your employer's payroll deduction system or put money into the account on a monthly, quarterly or yearly basis. Use the account as a place to put birthday checks or monetary gifts your child receives. Be aware of the tax implications of savings accounts.
Step 2
Establish a trust fund for your child at a financial institution, says Bankrate.com. Deposit the required opening amount and get information from your institution concerning interest rate and withdrawal procedures and penalties. Although the interest rates are not stellar, the trust fund gives you an opportunity to teach your child to put money aside and see firsthand the value of saving early.
Step 3
Purchase a certificate of deposit for your child's future. Feel secure in the guaranteed interest rate your bank or financial institution offers, but understand that interest on the investment is taxable. Use a certificate of deposit as just one of the many ways you save for your child's future.
Step 4
Invest in a Section 529 college savings plan. Run by the state, these plans allow you to put aside designated funds for your child's college education. Retain control over the investments by analyzing your investment choices on a yearly basis. Some states allow you to choose between a tuition prepayment plan and an investment option. Save up to $300,000 for each of your children. Check on fees, penalties and other expenses before investing.
Step 5
Visit your bank and ask about opening a designated Coverdell educational savings account. Put up to $2,000 per year into the account. According to the IRS, you cannot deduct your contributions from your taxes, but the earnings grow tax free until distributed. Your child can use the money for tuition and other college expenses.
Step 6
Develop a family budget and commit to following your plan. Put a priority on saving for your child's future needs. Use an online financial calculator to determine how much money you need to set aside each month to meet your child's educational and other needs. The earlier in your child's life you start investing, the less money you need to put aside each month.
Tips and Warnings
- Start investing today, even if your child is in high school. Consult with a financial planner to determine the best savings plan for your situation. Ask relatives to contribute to your child's education. As your child gets older, share your investing strategies with her. Encourage your child to save for his own future.
- Thoroughly research fees, withdrawal penalties and tax implications. Diversify your investments.
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