How to Invest^* for Your New Baby

There are so many decisions to make when you have a new baby. It can be difficult to decide on just the basics: cribs, car seats, strollers. There are so many products on the market, it can be overwhelming. Luckily, one item on your to-do list for new babies should not require much decision making: saving for their future. You don’t necessarily need to learn to invest. It can be as simple as opening a savings account for kids.

Many lucky new parents will find that the arrival of their new family member often times comes with gifts. It’s a common tradition for grandparents, aunts, uncles, and other friends and family members to give money. And these gifts sometimes keep coming over the years around birthdays and holidays. Instead of using that money to buy another toy or gadget, you might consider investing the money instead. Here are three ways to do just that.

A Basic Savings Account
Opening a basic savings account is the most obvious and perhaps the simplest way to save. They’re easy to open, usually require very little money to get started, and you can withdraw your money anytime. This ease of access however, may not be ideal for saving large amounts of money over a long term. Ask your financial institution what they offer in terms of savings accounts for kids.

An Education Savings Account 
This type of savings account is a great place to start when it comes to investment accounts for kids’ education. The reason is that you can use the money you save and invest in this type of account for tuition for your child even before college. So, if they attend an expensive private high school, you can use the money you saved in your Education Savings Account towards that. Your contributions are not tax deductible, but the money does grow tax-free until you take it out and use it for educational expenses.

A 529 College Savings Fund
A 529 College Savings Fund is the most popular type of investment people make for their children’s future. When you put money in a 529 account, it grows tax deferred, and as long as you use the money to pay for your child’s education, you can use it tax-free. If your child doesn’t attend college or if they receive scholarships and aid, you can roll any leftover funds to another qualifying family member. And if you’re not sure whether you want to use your child’s savings for college, you can open something called a custodial account.

A Custodial Account
A custodial account is an account that you set up in your child’s name with you listed as the custodian of the account. This means that you are responsible for the account until your child turns 18 or 21, depending on your state of residence. (The age is 21 in Texas.) When they reach legal age, the funds must be turned over to the child.

A custodial account does not have as many tax advantages as a 529 College Savings Fund, but it also does not have as many restrictions. For example, your child can use this money for college or a down payment on a house or to start a business. It will really be up to them and they can use it for anything without a penalty.

A word of caution is in order: Many people who have created custodial accounts find it hard to turn the assets over to the child when the time comes. However, this is required for all custodial accounts. It’s important to make sure that you will be comfortable turning over the full value of the account when your child reaches age 18 or 21.

There is another option for those concerned their dependent might not be quite ready for the complete financial responsibility that comes overnight with a custodial account, particularly if large sums of money are at stake: You can create an account in your name and simply gift the proceeds to the child when you feel they are ready.

Most Saving is Smart Saving
Ultimately, any of these options could be a wise choice because you’ll be investing in your baby’s future. You know it’s a great decision to invest or open a savings account for your kids, it’s just a matter of deciding how to invest. You can speak with a qualified investment professional to get information about investment accounts for minors in general and how best to invest in your child’s future. Remember, even a little bit can go a long way, and if you start saving the money your child receives for gifts very early in their lives, they will be well prepared to go to college without taking on the burden of student loan debt that is so commonplace today.

* Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. UFCU has contracted with CFS to make non-deposit investment products and services available to credit union members. CFS does not provide tax or legal advice. For such guidance, please consult a tax and/or legal advisor.