Being a parent pays in a million different ways, big and small. But it’s got more than a few costs too. The right savings accounts—that’s right, accounts, plural—can help you prepare for those costs, so you can focus on all the good stuff. Here are four types of accounts that can help you, and your kids, prepare for whatever’s next.
1. Emergency Fund
In case of a job loss, medical emergency, or another unexpected development, everyone should have an emergency fund. But it becomes even more important once you have kids. Experts recommend having three to six months’ worth of expenses saved for an emergency. If you don’t have much saved yet, that can feel like a steep hill to climb. But the sooner you start saving toward that goal, the better off you and your family will be.
Scheduling automatic deposits from your checking account to a USECU Savings Account can help, and so can our 52-Week Savings Challenge plan. Join the challenge and start out by saving just $1 the first week. By the end of the year you’ll have saved nearly $1,400—and your family will be better prepared for an emergency.
2. College Fund
Like most parents, you probably want to help your child pay for at least some of the costs associated with higher education. Whether your child is in diapers, in grade school, or in high school—start saving for college now, or increase the amount you’re saving if you can, to make paying for college easier when the time comes for them to leave the nest.
Opening a tax-advantaged account like a Coverdell Education Savings account or a 529 plan is a great way to save for your child’s college education while potentially reducing what you owe in taxes.
3. Youth Savings Account
It’s never too early to start teaching your child about money. Help them learn the value of a dollar by encouraging them to open a Youth Savings account. It’s a great place to stash birthday money, an allowance, and part of their paycheck once they’re old enough to get a job, and the lessons they learn about the importance of saving money will last them a lifetime.
If your child is less than a year old, here’s an extra incentive for you to get them started: For a limited time, open a Youth Savings account at USE Credit Union before their first birthday using the promo code DARE2DREAM and we’ll match your first deposit, up to $50.
4. Retirement Account
Once you have a child, it’s natural for your priorities to shift away from saving for your own retirement and toward saving for your child’s education. But don’t forget about your own needs. If you have a 401(k) through work, and your employer offers a match, be sure to contribute enough to qualify for the full match. If you don’t have access to a 401(k) or you’re looking for another way to save for retirement, consider opening an individual retirement account (IRA).
There are two main types of IRAs: traditional and Roth, both of which allow you to enjoy tax-deferred growth as you save for retirement. With a traditional IRA, you enjoy tax advantages now and pay taxes on the money when you take it out in retirement. That tax break can be a big help now if raising kids is straining your budget. With a Roth IRA, you pay taxes on the money you contribute now, and if eligible, you can take it out tax-free in retirement. This can save you money in the long term if you expect to be in a higher tax bracket when you retire.
If your child is earning their own money, they can open a retirement account too. A Roth IRA can be a great option to help a child save money, because there are no age restrictions to contribute, and qualified withdrawals are tax-free for both contributions and earnings. Plus, as USE Credit Union Chief Financial Officer Todd Tharp told Bankrate.com, opening an account early gives compound interest time to have a big impact.
“By the time your child reaches retirement, they could have more in their Roth IRA than they would in a traditional savings account,” he says.
Here for You & Your Family
At USE Credit Union, we know that parents have unique needs. Talk to one of our experienced financial advisors for help achieving your goals and setting your child on the path to achieving theirs.
Must meet membership and account criteria. Consult a tax professional regarding your individual tax situation.