Saving up for a better future

In today’s fast-paced world, rising taxes and increasing living costs make it harder to secure a stable future for our kids. Balancing daily expenses with long-term savings is challenging, leaving many families struggling to plan for education and opportunities while navigating financial uncertainty and economic pressures.

Setting up a bright future for our kids starts with saving today. Creating dedicated savings funds ensures financial stability for their education, life goals, and unexpected needs. Consistent saving habits build a secure foundation, offering peace of mind and helping our children pursue their dreams without limitations.

What are the options?

There are various options for saving up for your child’s future, including 529 college savings plans, Roth IRAs, and UGMA accounts. Each offers unique benefits, from tax advantages to flexible use of funds. UGMA accounts, for example, allow you to invest in assets that grow over time for any child-related expenses.

UGMA – What type of account is this?

UGMA (Uniform Gifts to Minors Act) accounts are custodial accounts that allow parents or guardians to set aside assets for a child until they reach adulthood, usually at 18 or 21, depending on the state. These accounts can hold a variety of assets, including cash, stocks, bonds, and mutual funds. One key benefit is that the funds can be used for any purpose that benefits the child, from education to other major life expenses. UGMA accounts offer tax advantages, as the earnings are typically taxed at the child’s lower tax rate, making them a smart way to save for a child’s future.

Advantages of UGMA accounts:

1. Tax Benefits: Earnings are taxed at the child’s lower tax rate, reducing the overall tax burden.
2. Flexibility: Funds can be used for any expenses that benefit the child, not just education.
3. Diverse Investments: Parents can invest in a variety of assets, such as stocks, bonds, and mutual funds.

Disadvantages of UGMA accounts:

1. Irrevocable Transfer: Once the assets are gifted, they belong to the child and can’t be reclaimed by the parent.
2. No Restriction on Use: At the age of maturity, the child can use the funds for any purpose, which may not align with the parent’s intentions.
3. Financial Aid Impact: Assets in UGMA accounts are considered the child’s, potentially reducing financial aid eligibility for college.

Save more on limiting recurring expenses:

1. Evaluate Subscriptions: Regularly review subscriptions like streaming services, magazines, or apps, and cancel those you no longer use or need.
2. Negotiate Bills: Contact service providers for internet, phone, or insurance to negotiate lower rates or switch to a more affordable plan.
3. Use Energy Efficiently: Lower utility bills by using energy-saving appliances, turning off lights when not in use, and adjusting thermostat settings.
4. Buy in Bulk: Purchase non-perishable items in bulk to save on per-unit costs and reduce frequent trips to the store.
5. Automate Savings: Set up automatic transfers to a savings account to avoid unnecessary spending, prioritizing your financial goals over impulse purchases.